<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
CITATION CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 3320 63-0828225
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
2 OFFICE PARK CIRCLE, SUITE 204, BIRMINGHAM, ALABAMA 35223
(205) 871-5731
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------------
T. MORRIS HACKNEY, CHAIRMAN
CITATION CORPORATION
2 OFFICE PARK CIRCLE, SUITE 204, BIRMINGHAM, ALABAMA 35223
(205) 871-5731
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------------
COPIES TO:
CAROLYN L. DUNCAN, ESQUIRE PATRICK M. RYAN, ESQUIRE
RITCHIE & REDIKER, L.L.C. QUARLES & BRADY
312 NORTH 23RD STREET 411 EAST WISCONSIN AVENUE
BIRMINGHAM, ALABAMA 35203 MILWAUKEE, WISCONSIN 53202
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective and all conditions prerequisite to the merger of Citation Forging
Corporation ("Sub") with and into Interstate Forging Industries, Inc.
("Interstate") (the "Merger") have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Title of Amount Proposed maximum Proposed maximum Amount of
each class of securities to be offering price aggregate registration
to be registered registered per unit offering price fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contingent Payment Rights 1,496,474 rights (1) $ 0.00 (2) $ 0.00 (2) $ 100
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on 1,313,524 issued and outstanding shares of Interstate Common Stock
and stock options for an additional 182,950 shares of Interstate Common
Stock that will be converted into, in addition to cash payable at the
effective time of the Merger, Contingent Payment Rights of the Registrant
on a one share for one right basis pursuant to the Agreement and Plan of
Merger, among the Registrant, Sub and Interstate, to which this
Registration Statement relates. The Contingent Payment Rights represent
cash consideration which may be payable by the Registrant in the future to
the former shareholders of Interstate should Interstate's average annual
net earnings before interest and income and franchise taxes during the
three year period ending December 31, 1998 exceed $9,500,000.
(2) The proposed maximum aggregate offering price is estimated pursuant to Rule
457(f)(2) under the Securities Act of 1933 solely for the purpose of
calculating the registration fee, based on $20.46 per share, the book value
for a share of Interstate Common Stock at May 31, 1996, the latest
practicable date prior to the date of filing this Registration Statement.
Pursuant to Rule 457(f)(3), the proposed maximum aggregate offering price
has been reduced to $0.00 reflecting the estimated $32.23 cash payment per
share of Interstate Common Stock to be made by the Registrant at the
effective time of the transaction, assuming the transaction were to close
on August 31, 1996. The proposed maximum offering price per unit has been
determined by dividing the proposed maximum aggregate offering price by the
number of rights being registered, rounded to the nearest cent.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
<PAGE>
CITATION CORPORATION
CROSS-REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM S-4
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
ITEM NUMBER IN FORM S-4 PROSPECTUS CAPTION OR LOCATION
- -----------------------------------------------------------------------------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
- -----------------------------------------------------------------------------------------------
1. Forepart of Registration Facing Page of Registration
Statement and Outside Front Statement; Outside Front Cover
Cover Page of Prospectus Page of Proxy Statement-
Prospectus
- -----------------------------------------------------------------------------------------------
2. Inside Front and Outside Back Available Information;
Cover Pages of Prospectus Incorporation of Documents by
Reference; Table of Contents
- -----------------------------------------------------------------------------------------------
3. Risk Factors, Ratio of Earnings Summary
to Fixed Charges and Other
Information
- -----------------------------------------------------------------------------------------------
4. Terms of the Transaction Summary; The Proposed Merger;
Description of Interstate Capital Stock;
Description of Contingent Payments
- -----------------------------------------------------------------------------------------------
5. Pro Forma Financial Information Pro Forma Condensed Consolidated
Financial Statements
- -----------------------------------------------------------------------------------------------
6. Material Contracts with the Summary; The Proposed Merger
Company Being Acquired
- -----------------------------------------------------------------------------------------------
7. Additional Information Required Inapplicable
for Reoffering by Persons and
Parties Deemed to Be Underwriters
- -----------------------------------------------------------------------------------------------
8. Interests of Named Experts and Legal Matters
Counsel
- -----------------------------------------------------------------------------------------------
9. Disclosure of Commission Inapplicable
Position on Indemnification for
Securities Act Liabilities
- -----------------------------------------------------------------------------------------------
B. INFORMATION ABOUT THE REGISTRANT
- -----------------------------------------------------------------------------------------------
10. Information with Respect to S-3 Incorporation of Documents by
Registrants Reference; Summary; Certain
Information Concerning Citation;
Pro Forma Condensed Consolidated
Financial Statements
- -----------------------------------------------------------------------------------------------
11. Incorporation of Certain Incorporation of Documents by
Information by Reference Reference
- -----------------------------------------------------------------------------------------------
12. Information with Respect to S-2 Inapplicable
or S-3 Registrants
- -----------------------------------------------------------------------------------------------
13. Incorporation of Certain Inapplicable
Information by Reference
- -----------------------------------------------------------------------------------------------
14. Information with Respect to Inapplicable
Registrants Other Than S-3 or
S-2 Registrants
- -----------------------------------------------------------------------------------------------
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
- -----------------------------------------------------------------------------------------------
15. Information with Respect to S-3 Inapplicable
Companies
- -----------------------------------------------------------------------------------------------
16. Information with Respect to S-2 Inapplicable
or S-3 Companies
- -----------------------------------------------------------------------------------------------
17. Information with Respect to Summary; Market Prices of
Companies Other Than S-3 or S-2 Interstate Stock and Dividends;
Companies Selected Financial Information
of Interstate; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations of Interstate;
Business of Interstate; Financial
Statements of Interstate
- -----------------------------------------------------------------------------------------------
D. VOTING AND MANAGEMENT INFORMATION
- -----------------------------------------------------------------------------------------------
18. Information if Proxies, Notice of Special Meeting of
Consents or Authorizations are Shareholders; Outside Front
to be Solicited Cover Page of Proxy Statement-
Prospectus; Incorporation of
Documents by Reference; Summary;
The Special Meeting; The
Proposed Merger; Certain
Information Concerning Citation;
Principal Shareholders of
Interstate; Interstate Executive
and Director Compensation
- -----------------------------------------------------------------------------------------------
19. Information if Proxies, Inapplicable
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[INTERSTATE LETTERHEAD]
_____________, 1996
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Interstate Forging Industries, Inc. ("Interstate") to be held on
_________________, 1996 in the 25th Floor Conference Center at the Offices of
Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee, Wisconsin (the "Special
Meeting"). The Special Meeting will begin at ____ __.m., local time. At the
Special Meeting, you will be asked to approve an Agreement and Plan of Merger,
including the related Plan of Merger (together, the "Merger Agreement"), which
provides for the merger (the "Merger") of Citation Forging Corporation ("Sub"),
a wholly-owned subsidiary of Citation Corporation ("Citation"), with and into
Interstate.
The Merger Agreement provides that, upon consummation of the Merger, each
outstanding share of Interstate Common Stock, and each share of Interstate
Common Stock (other than shares for which dissenters' rights are perfected)
underlying an outstanding Interstate stock option, will be converted into the
right to receive, without interest thereon: (i) a cash amount payable at the
effective time of the transaction from total aggregate closing consideration
of $45,409,000, plus $9,952.66 per day from April 1, 1996 to and including
the closing date of the Merger, less Interstate Merger expenses and (ii)
certain additional contingent cash payments should Interstate's average
annual net earnings before interest and income and franchise taxes during the
three year period ending December 31, 1998 exceed $9,500,000, all as more
fully described in the accompanying Proxy Statement-Prospectus. For example,
if the Merger were to become effective on August 31, 1996, and assuming
transaction costs of the Merger incurred by Interstate total $375,000 (actual
transaction costs could be higher or lower), each share of Interstate Common
Stock outstanding on that date would be converted into the right to receive
$32.2259 in cash as of such date. Since the future net earnings of Interstate
are subject to a number of factors, many of which are beyond the control of
Interstate, there can be no assurance that Interstate shareholders will
receive any contingent cash payments after the effective time of the Merger.
THE BOARD OF DIRECTORS OF INTERSTATE BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF INTERSTATE AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT. Even
without consideration of the possible contingent cash payments in the future,
shareholders of Interstate will receive cash per share at the effective time of
the Merger representing a significant premium to Interstate's book value per
share at the time the transaction was announced. Robert W. Baird & Co.
Incorporated has issued its opinion to the effect that, as of the date of such
opinion and based upon the factors and assumptions described therein, the
consideration to be paid to holders of Interstate Common Stock pursuant to the
terms of the Merger Agreement is fair, from a financial point of view, to such
holders (other than Citation, Sub and their respective affiliates).
The attached Proxy Statement-Prospectus will provide you with a detailed
description of the Merger Agreement and the transactions contemplated thereby.
The Merger Agreement is itself attached as Appendix A to the Proxy Statement-
Prospectus. Information concerning Interstate, Citation and Sub is also
provided in the Proxy Statement-Prospectus or incorporated by reference and
available upon request.
Consummation of the Merger is subject to the satisfaction of certain
conditions, including the receipt of required regulatory approvals and the
approval of the Merger Agreement by the shareholders of Interstate. After the
Merger is consummated, you will receive instructions concerning the exchange of
your Interstate Common Stock. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT
THIS TIME.
<PAGE>
The affirmative vote of a majority of all the votes entitled to be cast at
the Special Meeting by holders of the outstanding shares of Interstate Common
Stock is required for approval of the Merger Agreement. The failure to execute
and return the accompanying proxy card or to vote in person at the Special
Meeting will have the effect of a vote cast against approval of the Merger
Agreement. Furthermore, abstentions will have the same effect as votes cast
against approval of the Merger Agreement. TO ASSURE THAT YOUR SHARES ARE
REPRESENTED IN VOTING ON THIS VERY IMPORTANT MATTER, PLEASE COMPLETE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. If you do attend, you may, if you
wish, revoke your proxy and vote your shares in person at the Special Meeting.
Very truly yours,
Franklyn Esenberg
Chairman of the Board
<PAGE>
INTERSTATE FORGING INDUSTRIES, INC.
4051 NORTH 27TH STREET
MILWAUKEE, WISCONSIN 53216-1883
(414) 444-0911
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________________, 1996
To the Shareholders of Interstate Forging Industries, Inc.:
Notice is hereby given that a Special Meeting of Shareholders of Interstate
Forging Industries, Inc., a Wisconsin corporation ("Interstate"), will be held
on ____________________, _____________________________, 1996, at _____________
__.m., local time, in the 25th Floor Conference Center at the Offices of
Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee, Wisconsin (the
"Special Meeting") for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of May 16, 1996, among Citation Corporation, a Delaware
corporation ("Citation"), Citation Forging Corporation, a Wisconsin corporation
and a wholly-owned subsidiary of Citation ("Sub"), and Interstate, including the
related Plan of Merger between Interstate and Sub (together, the "Merger
Agreement"), a copy of which is attached as Appendix A to the accompanying Proxy
Statement-Prospectus, pursuant to which, among other things, (a) Sub would be
merged with and into Interstate (the "Merger"), with Interstate surviving the
Merger as a wholly-owned subsidiary of Citation, the separate existence of Sub
ceasing; and (b) each outstanding share of Interstate Common Stock (other than
shares for which dissenters' rights are perfected), and each share of Interstate
Common Stock underlying an outstanding Interstate stock option, will be
converted into the right to receive, without interest thereon: (i) a cash
amount payable at the effective time of the Merger from total aggregate closing
consideration of $45,409,000, plus $9,952.66 per day from April 1, 1996 to and
including the closing date of the Merger, less Interstate Merger expenses, and
(ii) certain additional contingent cash payments should Interstate's average
annual net earnings before interest and income and franchise taxes during the
three year period ending December 31, 1998 exceed $9,500,000, all as more fully
described in the accompanying Proxy Statement-Prospectus; and
2. To act upon such other matters as may properly be brought before the
Special Meeting or any adjournments or postponements thereof.
INTERSTATE'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AS BEING IN THE
BEST INTERESTS OF INTERSTATE AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Only holders of record of Interstate Common Stock at the close of business
on _____________, 1996, the record date fixed by the Board of Directors, will be
entitled to notice of, and to vote at, the Special Meeting and any adjournments
or postponements thereof.
Registered and beneficial shareholders are entitled to assert dissenters'
rights as to the Merger under Sections 180.1301 to 180.1331 of the Wisconsin
Business Corporation Law. A copy of those Sections is attached as Appendix B to
the accompanying Proxy Statement-Prospectus.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy card and return it promptly in the enclosed
prepaid envelope. If you attend the Special Meeting, you may revoke such proxy
and vote in person if you wish, even if you have previously returned your proxy
card. If you do not attend the Special Meeting, you may still revoke such proxy
at any time prior to the Special Meeting of Shareholders by providing written
notice of such revocation to Constance J. Janikowski, Secretary of Interstate.
By Order of the Board of Directors,
Constance J. Janikowski
SECRETARY
_____________________ , 1996
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO ASSURE
YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE YOUR
PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. DO NOT SEND ANY STOCK CERTIFICATES WITH
THE ENCLOSED PROXY CARD. THE PROCEDURE FOR THE EXCHANGE OF YOUR SHARES AFTER
THE MERGER IS CONSUMMATED IS SET FORTH IN THE ATTACHED PROXY STATEMENT-
PROSPECTUS.
<PAGE>
INTERSTATE FORGING INDUSTRIES, INC.
PROXY STATEMENT
----------------------------------
CITATION CORPORATION
PROSPECTUS
CONTINGENT PAYMENT RIGHTS
-------------------------
This Proxy Statement-Prospectus is being furnished by Interstate Forging
Industries, Inc., a Wisconsin corporation ("Interstate"), to holders of common
stock, par value $1.00 per share, of Interstate (the "Interstate Common Stock"),
in connection with the solicitation of proxies by the Board of Directors of
Interstate (the "Interstate Board") for use at a Special Meeting of Shareholders
of Interstate to be held on ______________________, _________________________,
1996, in the 25th Floor Conference Center at the Offices of Quarles & Brady, 411
East Wisconsin Avenue, Milwaukee, Wisconsin, commencing at____________ ____.m.,
local time, and at any adjournment or postponement thereof (the "Special
Meeting").
The Special Meeting has been called to consider and vote upon a proposal to
approve the Agreement and Plan of Merger, dated as of May 16, 1996, among
Interstate, Citation Corporation, a Delaware corporation ("Citation") and
Citation Forging Corporation, a Wisconsin corporation and a direct, wholly-owned
subsidiary of Citation ("Sub"), including the related Plan of Merger between
Interstate and Sub (together, the "Merger Agreement"), pursuant to which
Interstate would be acquired by Citation by means of a statutory merger of Sub
with and into Interstate (the "Merger"). If the Merger is consummated,
Interstate will become a wholly-owned subsidiary of Citation, and each share of
Interstate Common Stock issued and outstanding (other than shares for which
dissenters' rights have been perfected) or underlying an outstanding Interstate
stock option, whether vested or unvested (the "Option Stock"), immediately prior
to the Effective Time (as defined herein) of the Merger will be converted into
the right to receive, without interest thereon: (i) a cash amount payable at
the Effective Time from total aggregate Closing (as defined herein)
consideration of $45,409,000, plus $9,952.66 per day from April 1, 1996 to and
including the Closing Date (as defined herein) of the Merger, less certain costs
and expenses incurred by Interstate in connection with the Merger (the
"Interstate Transaction Costs"), and (ii) certain additional contingent cash
payments, if any, should Interstate's average annual net earnings before
interest and income and franchise taxes during the three year period ending
December 31, 1998 exceed $9,500,000 (the "Contingent Payments"), as more fully
described herein. For a description of certain significant terms of the Merger,
see THE PROPOSED MERGER. For all of the terms of the Merger, see the Merger
Agreement (attached hereto as Appendix A).
This Proxy Statement-Prospectus also constitutes a prospectus of Citation
with respect to the Contingent Payments which may be payable to the holders of
Interstate Common Stock and Option Stock following consummation of the Merger.
The holders of rights to Contingent Payments may not receive any payments in
respect thereof depending on a variety of factors described in this Proxy
Statement-Prospectus. For a description of the terms of the Contingent
Payments, as well as the significant considerations associated therewith, see
SPECIAL CONSIDERATIONS, THE PROPOSED MERGER--OPINION OF ROBERT W. BAIRD & CO.
INCORPORATED and DESCRIPTION OF CONTINGENT PAYMENTS.
Citation has supplied all information contained in this Proxy Statement-
Prospectus relating to Citation and Sub, and Interstate has supplied all
information contained in this Proxy Statement-Prospectus relating to Interstate.
This Proxy Statement-Prospectus and the accompanying form of proxy are
first being mailed to shareholders of Interstate on or about ______________
__________, 1996.
THE CONTINGENT PAYMENTS THAT MAY BE PAYABLE WITH RESPECT TO THE MERGER HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS _____________________, 1996.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE A PROSPECTUS FOR
SALE OF CITATION COMMON STOCK NOR FOR THE RESALE OF THE CONTINGENT
PAYMENTS. NO PERSON IS AUTHORIZED TO MAKE ANY USE OF THIS PROXY
STATEMENT-PROSPECTUS FOR THE SALE OF CITATION COMMON STOCK OR THE
RESALE OF THE CONTINGENT PAYMENTS.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE CONTINGENT PAYMENTS OFFERED BY THIS PROXY STATEMENT-
PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO OR FROM ANY
PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF
AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF CONTINGENT PAYMENTS
PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
INTERSTATE, CITATION OR SUB OR IN THE INFORMATION SET FORTH HEREIN SINCE THE
DATE OF THIS PROXY STATEMENT-PROSPECTUS.
AVAILABLE INFORMATION
Citation has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933 (the "Securities Act") with respect
to the offering of the Contingent Payments which may be paid in connection with
the Merger. This Proxy Statement-Prospectus constitutes a part of the
Registration Statement and, in accordance with the rules of the Commission,
omits certain of the information contained in the Registration Statement. For
such omitted information, reference is made to the Registration Statement and
the exhibits thereto, which are available for inspection and copying as set
forth below.
Citation is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Commission. The
Registration Statement, as well as such reports, proxy statements and other
information, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
INCORPORATION OF DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. CITATION HEREBY UNDERTAKES TO
PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A
COPY OF THIS PROXY STATEMENT-PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST OF SUCH PERSON, BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN
ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, A COPY OF ANY AND ALL DOCUMENTS AND
INFORMATION THAT HAVE BEEN INCORPORATED BY REFERENCE HEREIN (NOT INCLUDING
EXHIBITS THERETO UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO THE INFORMATION INCORPORATED HEREIN). SUCH DOCUMENTS AND INFORMATION ARE
AVAILABLE UPON REQUEST FROM CITATION CORPORATION, 2 OFFICE PARK CIRCLE, SUITE
204, BIRMINGHAM, ALABAMA 35223, ATTENTION: INVESTOR RELATIONS; TELEPHONE: (205)
871-5731. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY SUCH DOCUMENTS AND
INFORMATION, ANY REQUEST SHOULD BE MADE BY ___________________, 1996.
The following documents filed by Citation with the Commission are hereby
incorporated by reference in this Proxy Statement-Prospectus: (1) Citation's
Annual Report on Form 10-K for the year ended October 1, 1995; (2) Citation's
Quarterly Reports on Form 10-Q for the quarters ended December 31, 1995 and
March 31, 1996; (3) Citation's Current Reports on Form 8-K dated January 5,
1996, and March 1, 1996, as amended by Form 8-K/A dated May 4, 1996; and (4)
Citation's Proxy Statement for its
-2-
<PAGE>
1996 Annual Meeting of Shareholders.
All documents filed by Citation pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
before the date of the Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing thereof. Any
statement contained herein or in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement-Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Proxy Statement-Prospectus, except as so modified or
superseded.
-3-
<PAGE>
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... 2
SUMMARY.................................................................... 6
THE PARTIES............................................................ 6
SPECIAL MEETING........................................................ 6
RECORD DATE AND REQUIRED VOTE.......................................... 6
INTERSTATE BOARD APPROVAL.............................................. 7
OPINION OF ROBERT W. BAIRD & CO. INCORPORATED.......................... 7
THE PROPOSED MERGER.................................................... 7
PER SHARE DATA......................................................... 9
MARKET PRICE DATA...................................................... 10
SELECTED FINANCIAL INFORMATION OF CITATION............................. 10
RECENT DEVELOPMENTS.................................................... 12
SPECIAL CONSIDERATIONS..................................................... 13
CONSIDERATIONS APPLICABLE TO INTERSTATE................................ 13
CONSIDERATIONS APPLICABLE TO CITATION.................................. 14
THE SPECIAL MEETING........................................................ 16
GENERAL................................................................ 16
PURPOSE OF THE SPECIAL MEETING......................................... 16
BOARD OF DIRECTORS' RECOMMENDATION..................................... 16
RECORD DATE, VOTING RIGHTS AND SHAREHOLDER APPROVAL.................... 16
PROXIES................................................................ 17
THE PROPOSED MERGER........................................................ 18
BACKGROUND OF THE MERGER............................................... 18
REASONS FOR THE MERGER; RECOMMENDATION OF THE INTERSTATE BOARD......... 21
OPINION OF ROBERT W. BAIRD & CO. INCORPORATED.......................... 22
PRINCIPAL TERMS OF THE MERGER.......................................... 25
CONDITIONS TO CLOSING.................................................. 27
WAIVER, AMENDMENT AND TERMINATION...................................... 27
REPRESENTATIONS AND WARRANTIES......................................... 27
RIGHTS OF DISSENTING SHAREHOLDERS...................................... 28
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................ 30
CONDUCT OF BUSINESS PENDING THE MERGER................................. 32
COMPETING TRANSACTIONS................................................. 33
INDEMNIFICATION........................................................ 33
FEES AND EXPENSES...................................................... 34
ACCOUNTING TREATMENT................................................... 35
REGULATORY MATTERS..................................................... 35
MANAGEMENT AND OPERATIONS OF INTERSTATE AFTER CLOSING.................. 35
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................. 36
STOCKHOLDERS AGENTS.................................................... 37
EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS................... 38
-4-
<PAGE>
DESCRIPTION OF INTERSTATE CAPITAL STOCK.................................... 39
GENERAL................................................................. 39
COMMON STOCK............................................................ 40
CERTAIN ANTI-TAKEOVER PROVISIONS........................................ 40
DESCRIPTION OF CONTINGENT PAYMENTS......................................... 40
GENERAL................................................................ 41
DESCRIPTION OF INTERSTATE EBIT......................................... 41
PROTECTIVE PROVISIONS.................................................. 42
PROCEDURES TO DETERMINE ANY CONTINGENT PAYMENTS DUE.................... 43
PAYMENT OF CONTINGENT PAYMENTS......................................... 43
COMPARISON OF CONTINGENT PAYMENTS TO INTERSTATE COMMON STOCK........... 44
CERTAIN INFORMATION CONCERNING CITATION.................................... 44
BUSINESS OF CITATION................................................... 44
ADDITIONAL INFORMATION................................................. 44
MARKET PRICES OF INTERSTATE COMMON STOCK AND DIVIDENDS..................... 44
SELECTED FINANCIAL INFORMATION OF INTERSTATE............................... 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF INTERSTATE.......................... 48
GENERAL................................................................ 48
OPERATIONS............................................................. 48
LIQUIDITY AND CAPITAL RESOURCES........................................ 50
BUSINESS OF INTERSTATE..................................................... 50
PRINCIPAL SHAREHOLDERS OF INTERSTATE....................................... 51
INTERSTATE EXECUTIVE AND DIRECTOR COMPENSATION............................. 53
SUMMARY COMPENSATION TABLE............................................. 53
OPTION EXERCISES AND YEAR-END VALUES................................... 54
DIRECTOR COMPENSATION.................................................. 54
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............ 54
EXPERTS.................................................................... 55
LEGAL MATTERS.............................................................. 55
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...................... F-1
FINANCIAL STATEMENTS OF INTERSTATE......................................... F-7
APPENDIX A--Agreement and Plan of Merger (including Articles of Merger and
Plan of Merger).......................................................... A-1
APPENDIX B--Wisconsin Statutes Concerning Rights of Dissenting Shareholders B-1
APPENDIX C--Fairness Opinion of Robert W. Baird & Co. Incorporated......... C-1
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN SIGNIFICANT MATTERS DISCUSSED
ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS. THIS SUMMARY DOES NOT PURPORT
TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS
AND THE APPENDICES HERETO. SHAREHOLDERS ARE URGED TO READ THE ENTIRE PROXY
STATEMENT-PROSPECTUS, INCLUDING THE APPENDICES HERETO. CERTAIN CAPITALIZED
TERMS USED IN THIS SUMMARY AND ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS
ARE USED AS DEFINED IN THE SUMMARY OR ELSEWHERE IN THIS PROXY
STATEMENT-PROSPECTUS.
THE PARTIES
Citation: Citation is a Delaware corporation which is in the business of
manufacturing, machining and assembling precision ductile, gray, and high-alloy
iron, steel and aluminum castings for various industrial markets. Citation's
principal executive offices are located at 2 Office Park Circle, Suite 204,
Birmingham, Alabama 35223, telephone (205) 871-5731. See CERTAIN INFORMATION
CONCERNING CITATION--BUSINESS OF CITATION.
Interstate: Interstate is a Wisconsin corporation which produces custom
closed die forgings of carbon, alloy and stainless steel for the construction
machinery, petroleum services, automotive, truck and bus, aircraft, railroad,
material handling, mining and power generation industries. Interstate's
principal executive offices are located at 4051 North 27th Street, Milwaukee,
Wisconsin 53216, telephone (414) 444-0911. See BUSINESS OF INTERSTATE.
Sub: Sub is a Wisconsin corporation and wholly-owned subsidiary of
Citation. Sub was recently formed for the purposes of effecting the Merger with
Interstate, will not engage in any business prior to the Merger and will not
survive the Merger. Sub's principal executive offices are located at 2 Office
Park Circle, Suite 204, Birmingham, Alabama 35223, telephone (205) 871-5731.
SPECIAL MEETING
The Special Meeting of Shareholders of Interstate will be held in the
25th Floor Conference Center at the Offices of Quarles & Brady, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin on __________________________,
_________________ ______, 1996, at __________ __ .m., local time. See THE
SPECIAL MEETING--GENERAL. At the Special Meeting, holders of Interstate
Common Stock will be asked to consider and vote upon a proposal to approve
the Merger Agreement. See THE SPECIAL MEETING--PURPOSE OF THE SPECIAL
MEETING.
RECORD DATE AND REQUIRED VOTE
Only holders of record of Interstate Common Stock at the close of business
on ______________, 1996 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting. Approval of the Merger Agreement will require the
affirmative vote of a majority of all the votes entitled to be cast at the
Special Meeting by the holders of the 1,313,524 outstanding shares of Interstate
Common Stock on the Record Date. At the Record Date, directors and executive
officers of Interstate beneficially owned approximately 30.6% of the outstanding
shares of Interstate Common Stock entitled to vote at the Special Meeting. See
THE SPECIAL MEETING--RECORD DATE, VOTING RIGHTS AND SHAREHOLDER APPROVAL.
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INTERSTATE BOARD APPROVAL
The Interstate Board has adopted and approved the Merger Agreement and
believes that the terms of the proposed Merger are fair to, and in the best
interests of, the Interstate shareholders. For discussion of the circumstances
surrounding the Merger and the factors considered by the Interstate Board in
making its recommendation, see THE PROPOSED MERGER--BACKGROUND OF THE MERGER and
- --REASONS FOR THE MERGER; RECOMMENDATION OF THE INTERSTATE BOARD.
OPINION OF ROBERT W. BAIRD & CO. INCORPORATED
Robert W. Baird & Co. Incorporated ("Baird") has issued its opinion to the
effect that, as of May 13, 1996, based upon the factors and assumptions
described therein, the consideration to be paid to the holders of Interstate
Common Stock pursuant to the terms of the Merger Agreement is fair, from a
financial point of view, to such holders (other than Citation, Sub and their
respective affiliates). A copy of Baird's opinion, which sets forth the
assumptions made, general procedures followed, matters considered and
limitations on the scope of review undertaken by Baird in rendering its opinion,
is attached as Appendix C to this Proxy Statement-Prospectus and should be read
by Interstate shareholders carefully and in its entirety. Interstate's
obligation to consummate the Merger is expressly conditioned on Baird's opinion
not having been withdrawn as of the date of the Special Meeting. See THE
PROPOSED MERGER--OPINION OF ROBERT W. BAIRD & CO. INCORPORATED and --CONDITIONS
TO CLOSING.
THE PROPOSED MERGER
Subject to Interstate shareholder approval and satisfaction or waiver of
certain other conditions, Sub will be merged with and into Interstate at the
Effective Time, with Interstate surviving the Merger (the "Surviving
Corporation"). The Surviving Corporation will become a wholly-owned subsidiary
of Citation. See THE PROPOSED MERGER--PRINCIPAL TERMS OF THE MERGER--EFFECT OF
THE MERGER.
MERGER CONSIDERATION. Each issued and outstanding share of Interstate Common
Stock (except shares owned by shareholders who perfect dissenters' rights), and
each share of Option Stock, will be converted into the right to receive, without
interest thereon, (i) an amount in cash payable at the Effective Time from total
aggregate Closing consideration of $45,409,000, plus $9,952.66 per day from
April 1, 1996 to and including the Closing Date of the Merger, less the
Interstate Transaction Costs, and (ii) a pro rata portion of the aggregate
amount of any Contingent Payments made for the three year period ending December
31, 1998. For example, assuming that the Effective Time occurs on August 31,
1996 and that the Interstate Transaction Costs total $375,000 (actual Interstate
Transaction Costs could be higher or lower): (i) each share of Interstate Common
Stock outstanding at the Effective Time (and for which dissenters' rights have
not been perfected) would be converted into the right to receive, without
interest thereon, an amount in cash equal to $32.2259 at the Effective Time; and
(ii) each share of Option Stock would be converted into an amount in cash equal
to $32.2259 less the per share exercise price of the related option (and less
any required withholding taxes) at the Effective Time. The registered holders
of Interstate Common Stock and the holders of Option Stock at the Effective Time
shall herein be referred to as the "Closing Stockholders." See THE PROPOSED
MERGER--PRINCIPAL TERMS OF THE MERGER--MERGER CONSIDERATION.
In addition to the consideration to be paid to the Closing Stockholders
upon the Effective Time, the Closing Stockholders will also be entitled to their
pro rata share of Contingent Payments, if any, consisting of aggregate
additional cash consideration equal to five (5) times the amount by which (x)
the average annual net earnings of Interstate before interest and income and
franchise taxes during the three year period from January 1, 1996 through
December 31, 1998 exceeds (y) $9,500,000. Such Contingent Payments shall be
payable over such three year period on the dates and in the increments described
herein. See DESCRIPTION OF CONTINGENT PAYMENTS.
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CONDITIONS TO CLOSING AND EFFECTIVE TIME. The parties' respective obligations
to consummate the Merger are subject to Interstate shareholder approval of the
Merger Agreement and a number of other conditions, each of which may be waived
either before or after the Special Meeting. If all such conditions are met or
waived, then the Effective Time of the Merger will be upon filing the Articles
of Merger with the Wisconsin Department of Financial Institutions. See THE
PROPOSED MERGER--CONDITIONS TO CLOSING and --PRINCIPAL TERMS OF THE
MERGER--EFFECT OF THE MERGER.
WAIVER, AMENDMENT AND TERMINATION. Each party may, at any time before the
Effective Time, whether before or after the Special Meeting, waive any of the
terms or conditions of the Merger Agreement, or agree to any amendment to the
Merger Agreement, as long as the amendment does not have a material adverse
effect on the Closing Stockholders. The Merger Agreement may be terminated at
any time before the Effective Time, whether before or after the Special Meeting,
(i) by the mutual consent of Citation and Interstate, (ii) by written notice
from either Citation or Interstate to the other party if the conditions required
of the other party shall not have been fulfilled by August 31, 1996, (iii) by
Interstate, if it agrees to a competing offer or transaction, or (iv) by written
notice from either Citation or Interstate to the other party if the Closing has
not occurred on or before September 30, 1996. See THE PROPOSED MERGER--WAIVER,
AMENDMENT AND TERMINATION.
REPRESENTATIONS AND WARRANTIES; CONDUCT OF BUSINESS BEFORE CLOSING. The Merger
Agreement contains certain customary representations and warranties of
Interstate, Citation and Sub relating to the organization and operations of such
entities. See THE PROPOSED MERGER--REPRESENTATIONS AND WARRANTIES. In the
Merger Agreement, Interstate has made certain covenants with respect to the
conduct of its business pending the Merger and Citation, Interstate and Sub have
agreed to take certain actions between the date of the Merger Agreement and the
Effective Time. See THE PROPOSED MERGER--CONDUCT OF BUSINESS PENDING THE
MERGER.
RIGHTS OF DISSENTING SHAREHOLDERS. Subject to consummation of the Merger, under
the Wisconsin Business Corporation Law (the "WBCL") holders of record and
beneficial owners of the Interstate Common Stock are entitled to dissenters'
rights to object to the Merger and demand payment of the "fair value" of their
shares in cash. The dissenters' rights provisions under the WBCL require strict
compliance. ANY SHAREHOLDER WHO WISHES TO OBJECT TO THE MERGER AND DEMAND
PAYMENT FOR SUCH SHAREHOLDER'S SHARES SHOULD CONSULT HIS OR HER OWN ATTORNEY OR
ADVISOR. If a shareholder fails to perfect dissenters' rights by not strictly
complying with the applicable statutory requirements, such shareholder will be
bound by the terms of the Merger Agreement. See THE PROPOSED MERGER--RIGHTS OF
DISSENTING SHAREHOLDERS and the statutory provisions set forth in APPENDIX B to
this Proxy Statement-Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The receipt of cash and the right to
Contingent Payments in exchange for shares of Interstate Common Stock pursuant
to the terms of the Merger Agreement (or the receipt of cash pursuant to the
exercise of dissenters' rights) will be a taxable transaction for federal income
tax purposes, and may also be a taxable transaction under applicable state,
local, foreign and other tax laws. INTERSTATE SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER. See THE PROPOSED MERGER--CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
FEES AND EXPENSES. Whether or not the Merger is consummated, each party will
pay all fees and expenses incurred by it in connection with the Merger
Agreement. See THE PROPOSED MERGER--FEES AND EXPENSES.
ACCOUNTING TREATMENT. The Merger will be accounted for by Citation under the
purchase method of accounting. See THE PROPOSED MERGER--ACCOUNTING TREATMENT.
REGULATORY MATTERS. Other than certain filings to be made pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and certain filings to be made and approvals obtained under certain
federal and state securities or "blue sky" laws, there are no federal or
state
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<PAGE>
regulatory requirements or authorities that must be complied with or whose
approval must be obtained, respectively, in connection with the Merger. See THE
PROPOSED MERGER--REGULATORY MATTERS.
MANAGEMENT AND OPERATIONS OF INTERSTATE AFTER CLOSING. After the Effective
Time, Interstate will be a wholly-owned subsidiary of Citation and will continue
to own and operate the business conducted by Interstate before the Effective
Time. Citation intends that the operations of Interstate after the Effective
Time will be conducted substantially the same as those of Interstate before the
Effective Time, with present Interstate management personnel retained except
that Franklyn Esenberg, Chairman of the Board of Interstate, will resign from
that position effective as of the Effective Time and will be appointed as the
Vice-Chairman of Interstate. See THE PROPOSED MERGER--MANAGEMENT AND OPERATIONS
OF INTERSTATE AFTER CLOSING.
INTERESTS OF CERTAIN PERSONS IN MERGER. Interstate and Citation have entered
into an Employment Agreement with James Mitchell, President and Chief Executive
Officer of Interstate, pursuant to which Mr. Mitchell will serve as President
and Chief Executive Officer of Interstate for a term beginning at the Effective
Time and continuing for a period of three years thereafter, which term is
subject to extension unless terminated by Mr. Mitchell or Interstate.
Interstate has also entered into an Employment Agreement with Franklyn Esenberg,
pursuant to which Mr. Esenberg will serve as Vice Chairman of the Board of
Interstate for a term beginning on the date of the Effective Time and continuing
until December 31, 2001. Citation has also agreed to appoint Mr. Esenberg to
its Board of Directors at the Effective Time. In connection with the Merger,
all outstanding Interstate SARs for a total of 32,600 underlying shares of
Interstate Common Stock granted to 20 key employees of Interstate will be
settled in cash by Interstate at the Effective Time. In addition, pursuant to
the terms of the Merger Agreement, Citation will make an aggregate award of
43,500 shares of restricted Citation Common Stock to 25 executive officers and
key employees of Interstate at the Effective Time. At the Record Date,
Interstate and its executive officers and directors owned approximately 72,500
shares of the common stock, par value $0.01 per share, of Citation ( the
"Citation Common Stock"). See THE PROPOSED MERGER--INTERESTS OF CERTAIN PERSONS
IN THE MERGER.
EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS. As of the Effective Time,
each holder of Interstate Common Stock (other than shareholders who perfect
dissenters' rights) and each holder of Option Stock will be entitled to receive,
upon surrender of their stock certificates formerly representing shares of
Interstate Common Stock or option agreements giving rise to their right to
Option Stock (the "Option Agreements"), respectively, the amount of cash into
which the shares of Interstate Common Stock represented by their certificates or
Option Agreements have been converted pursuant to the terms of the Merger
Agreement and the right to receive the Contingent Payments. Instructions for
surrendering Interstate stock certificates and Option Agreements will be
forwarded to the former Interstate shareholders and holders of Option Stock as
soon as practicable after the Effective Time. See THE PROPOSED MERGER--EXCHANGE
OF STOCK CERTIFICATES AND OPTION AGREEMENTS.
PER SHARE DATA
The following table presents certain historical and pro forma per share
data of Citation based upon the historical financial statements of Citation and
Interstate. No per share data of Interstate is presented in this Proxy
Statement-Prospectus as it is not meaningful in the context of the Merger. The
unaudited pro forma information of Citation gives effect to (i) the Merger, (ii)
the purchase by Citation of all other fiscal 1995 and 1996 acquisitions, and
(iii) Citation's secondary public offering of Citation Common Stock on September
18, 1995, as if these events had occurred at the beginning of the periods
presented. The unaudited pro forma information is provided for illustrative
purposes only and is not necessarily indicative of the results of operations
that actually would have been obtained if the Merger had been effected on the
date indicated or the results that may be obtained in the future. The following
information should be read in conjunction with the other unaudited pro forma
financial information that is included in this Proxy Statement-Prospectus (see
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS), the consolidated
financial statements of Citation that are incorporated by reference in this
Proxy Statement-Prospectus (see INCORPORATION OF DOCUMENTS BY REFERENCE), and
the separate financial
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statements of Interstate that are included in this Proxy Statement-Prospectus
(see FINANCIAL STATEMENTS OF INTERSTATE). Citation did not declare any
dividends during the periods presented.
Citation Pro Forma
Historical Combined
---------- --------
Net income per common share:
- ----------------------------
Six months ended:
March 31, 1996. . . . . . . . . . . $0.48 0.55
April 2, 1995 . . . . . . . . . . . 0.58 --
Year ended:
October 1, 1995 . . . . . . . . . . 1.27 1.50
Book value per common share:
- ----------------------------
As of:
March 31, 1996. . . . . . . . . . . 7.96 7.96
October 1, 1995 . . . . . . . . . . 7.49 --
MARKET PRICE DATA
Citation Common Stock trades on the National Market System of The Nasdaq
Stock Market ("Nasdaq") under the symbol CAST. There is no established public
trading market for Interstate Common Stock. The last sale price per share of
Citation Common Stock, as reported by Nasdaq on January 26, 1996, the last full
trading day before public announcement of the Merger, was $10.875. The last sale
transaction of Interstate Common Stock not pursuant to an Interstate employee
benefit plan occurring before public announcement of the Merger, of which the
Company has knowledge, was on October 23, 1995 at $11.00 per share. See
MARKET PRICE OF INTERSTATE COMMON STOCK AND DIVIDENDS.
On _____________________, 1996, the last sale price per share of Citation
Common Stock, as reported by Nasdaq, was $_______.
SELECTED FINANCIAL INFORMATION OF CITATION
The following table sets forth selected historical and pro forma financial
data for Citation and should be read in conjunction with the consolidated
financial statements and notes related thereto included in Citation's Annual
Report on Form 10-K (see INCORPORATION OF DOCUMENTS BY REFERENCE) and the pro
forma financial statements and notes related thereto included elsewhere in this
Proxy Statement-Prospectus (see PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS). The selected historical financial data as of and for the five
years ended October 1, 1995 have been derived from Citation's Consolidated
Financial Statements, which were audited by Coopers & Lybrand L.L.P., Citation's
independent accountants. The historical financial data for the six month periods
ended April 2, 1995 and March 31, 1996 are derived from Citation's unaudited
consolidated financial statements. The unaudited historical consolidated
financial statements for the six months ended March 31, 1996 and April 2, 1995
include all adjustments, consisting only of normal recurring accruals, which
Citation considers necessary for a fair presentation of the consolidated
financial position and the consolidated results of operations for these periods.
Pro forma selected financial data as of and for the year ended October 1, 1995
and the six months ended March 31, 1996 are derived from the financial
statements of Citation after giving effect to certain transactions described in
the notes following the table. Historical and pro forma operating results for
the six months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the entire year ending September 29, 1996.
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<TABLE>
<CAPTION>
Fiscal Year Ended (1)
September 29, September 27, October 3, October 2, October 1,
1991 1992 1993 1994 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales $ 117,279 $ 125,735 $ 150,318 $ 191,566 $ 307,681
Operating income $ 2,046 $ 4,628 $ 9,040 $ 19,995 $ 31,491
Pro forma net income
(loss) (4) $ (1,177) $ 1,195 $ 3,577 $ 10,668 $ 17,079
Pro forma net income per
share(5) $ 0.36 $ 1.02 $ 1.27
Weighted average number
of shares outstanding
(in thousands)(5) 9,933 10,486 13,438
BALANCE SHEET DATA
(AT END OF PERIOD):
Total Assets $ 71,418 $ 69,751 $ 82,223 $ 113,449 $ 271,871
Long-term debt, excluding
current portion $ 30,866 $ 25,794 $ 24,387 $ 29,703 $ 71,254
<CAPTION>
Pro Forma
Six Months
Pro Forma Six Months Ended Ended
----------------
October 1, April 2, March 31, March 31,
1995(2) 1995 1996 1996(3)
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
STATEMENT OF INCOME DATA:
Sales $ 613,972 $ 133,455 $ 212,716 $ 302,151
Operating income $ 57,456 $ 13,597 $ 16,473 $ 23,512
Pro forma net income
(loss) (4) $ 26,509 $ 7,635 $ 8,424 $ 9,788
Pro forma net income per
share(5) $ 1.50 $ 0.58 $ 0.48 $ 0.55
Weighted average number
of shares outstanding
(in thousands)(5) 17,676 13,243 17,676 17,676
BALANCE SHEET DATA
(AT END OF PERIOD):
Total Assets $ 357,529 $ 472,244
Long-term debt, excluding
current portion $ 136,218 $ 218,867
</TABLE>
____________________________
(1) Citation operates on a 52- or 53-week fiscal year ending on the Sunday
closest to September 30. Fiscal years 1991, 1992, 1994 and 1995 were
52-week fiscal years and fiscal year 1993 was a 53-week fiscal year.
(2) Gives effect to (i) the Merger, (ii) the purchase of all other fiscal 1995
and 1996 acquisitions, and (iii) Citation's secondary public offering of
common stock on September 18, 1995, as if each of these events had occurred
on October 3, 1994. See INCORPORATION OF DOCUMENTS BY REFERENCE, PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS and FINANCIAL STATEMENTS OF
INTERSTATE.
(3) Gives effect to (i) the Merger, and (ii) the purchase of all other fiscal
1996 acquisitions: (a) as if each of these events had occurred on October
2, 1995, with respect to statement of income data; and (b) as if each of
these events has occured as of March 31, 1996, with respect to balance
sheet data. See INCORPORATION OF DOCUMENTS BY REFERENCE, PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS and FINANCIAL STATEMENTS OF
INTERSTATE.
(4) The Company elected S corporation status effective September 28, 1987. The
Company's S corporation status was terminated concurrent with the August 2,
1994 initial public offering. The Company has been subject to corporate
income taxes for periods after August 2, 1994. Accordingly, pro forma net
income reflects federal and state income taxes as if the Company had been a
C Corporation based on the tax rates that were in effect during the periods
reported.
(5) The weighted average number of shares outstanding, for the year ended
October 3, 1993, gives effect to the estimated number of shares (1,002,500)
of Common Stock that would be required to be sold (at an assumed initial
public offering price of $8.00 per share) to fund the $8.0 million S
Corporation Distribution to existing stockholders.
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RECENT DEVELOPMENTS
CITATION. Since March 31, 1996, Citation has announced the following
recent developments (March 31, 1996 is the end of Citation's 1996 second
fiscal quarter, the results of which quarter are reported in Citation's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. Such
Report on Form 10-Q is Incorporated herein by reference. See INCORPORATION
OF DOCUMENTS BY REFERENCE):
Effective April 1, 1996, Citation completed the acquisition of the assets
of Bohn Aluminum Corporation of Butler, Indiana. Bohn Aluminum Corporation is a
producer of aluminum permanent mold castings to the medium truck, diesel engine
and construction equipment markets. In addition, Bohn Aluminum Corporation
operates its own smelter which remelts aluminum scrap for reuse. Bohn Aluminum
Corporation had net sales of approximately $32 million in 1995 and has
approximately 275 employees.
During May 1996, Citation experienced a brief strike at its Mansfield
Foundry subsidiary located in Mansfield, Ohio. The local 9365 of the United
Steelworkers of America (the "Union") went on strike as of midnight May 18, 1996
when the Union's contract expired without a new agreement. On May 28, 1996, the
Union ratified a modified agreement which ended the strike.
On June 18, 1996, Citation announced that it will immediately begin idling
its steel casting production at the steel division located at its Texas
Foundries plant in Lufkin, Texas. The division, which has approximately 125
employees, had sales of $13.3 million in fiscal year 1995 and showed a loss of
$2.1 million. Citation had raised prices on products produced by the steel
division effective March 1, 1996 in an attempt to make the plant profitable.
However, most customers of the division opted to move work elsewhere. Steel
casting customers remaining after the facility is idled will be offered the
opportunity to purchase their products from Citation's other steel divisions:
Texas Steel Company of Fort Worth, Texas or Pennsylvania Steel Foundry &
Machine Company of Hamburg, Pennsylvania. Some of the equipment of the steel
division will be transferred to other divisions and some is expected to be
used in iron production at Texas Foundries. At this time, Citation intends
to operate the facility and equipment for other products, rather than to
write off these assets.
INTERSTATE. Sales for the months of April and May 1996 amounted to $16.2
million, which was $1.6 million in excess of plan. The majority ($1.3 million)
of the difference between actual and planned sales was due to the invoicing of
tooling to General Motors Corporation for a second machining cell for the
General Motors lower control arm product.
Earnings for the two month period were $756,000.
Order intake during the two month period was strong, with new orders
amounting to $18.8 million. At May 31, 1996, the unshipped backlog was $50.1
million, of which $46 million is scheduled for shipment in the following six
months.
Cash flow from operations during the two month period was $800,000, of which
$400,000 was expended on plant and equipment.
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SPECIAL CONSIDERATIONS
Whether any Contingent Payments will be due to Interstate shareholders
and holders of Option Stock in the future will be based solely on
Interstate's financial performance during the period of January 1, 1996
through December 31, 1998. See DESCRIPTION OF CONTINGENT PAYMENTS. Pursuant
to the terms of the Merger Agreement, any Contingent Payments actually due
are to be paid by Citation. The ability of Interstate to achieve the average
annual net earnings before interest and income and franchise taxes necessary
to cause the Contingent Payments to be made, and the ability of Citation to
pay any Contingent Payments actually due, will depend in part on economic and
other conditions beyond the control of Interstate and Citation. Accordingly,
there can be no assurance that Interstate shareholders and holders of Option
Stock will receive any Contingent Payments. In addition to the other
information contained in or incorporated by reference into this Proxy
Statement-Prospectus, Interstate shareholders should carefully consider the
following factors relating to Interstate and Citation which could bear on
whether Interstate shareholders and holders of Option Stock will receive any
Contingent Payments.
CONSIDERATIONS APPLICABLE TO INTERSTATE
SALES CONCENTRATION. Although Interstate has substantially diversified
its markets in recent years, its sales are still relatively concentrated both
by customer and by industry group. In 1995, its largest customer
(Caterpillar, Inc. and its subcontractors) and its largest five customers
accounted for approximately 24% and 55% of the dollar amount of gross
shipments, respectively. Shipments to customers in the construction
machinery, petroleum services and auto, truck and bus industries accounted
for approximately 27%, 27% and 18% of the dollar amount of 1995 gross
shipments, respectively. A substantial portion of Interstate's sales are
likely to be concentrated within a few industries and with a few customers
within those industries for the immediate future. Interstate will continue to
be subject to changes in the economic vitality of those customers and
industries.
LOSS OF CUSTOMER. A customer of Interstate has informed Interstate that
it may terminate its relationship with Interstate if the transaction with
Citation is consummated. Sales to such customer in 1995 constituted
approximately 7% of Interstate's total sales and the net earnings before
interest and taxes from such sales in 1995 constituted approximately 10% of
Interstate's total net earnings before interest and taxes. The potential
loss of this customer was known at the time that the Interstate Board
considered the Merger. See THE PROPOSED MERGER--BACKGROUND OF THE MERGER.
No assurance can be given that Interstate will not lose this or other
customers during the period in which the right to Contingent Payments is
determined.
COMPETITION. The United States iron and steel forging industry is
characterized by many producers, both independent and captive, and by excess
capacity. Partly as a result, industry profit margins are relatively low.
The companies within the industry compete on the basis of price, quality,
service and engineering. A few other independent forging companies are
larger and have greater technical resources than Interstate, although
Interstate believes those companies operate primarily in different market
segments. In addition, there is a tendency for foreign producers to enter
the U.S. market when exchange rates permit. Dirona (Mexico) has recently
announced that it will install a 14,000 ton mechanical forging press in
direct competition with Interstate for the North American front axle forging
market. There can be no assurance that Interstate will be able to maintain
or improve its competitive position in its markets.
DEPENDENCE ON SALES TO THE CAPITAL GOODS SECTOR. As a manufacturer of
steel components for the capital goods sector, Interstate is subject to the
economic cycles that affect its customers. The industries which Interstate
serves are often greatly affected by swings in the overall economic cycle.
Accordingly, Interstate's revenues and profitability are subject to
variations and are likely to remain so even if it is successful in continuing
to reduce its dependence upon particular customers and industries.
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COSTS DURING DOWNTURNS. The forging industry is capital intensive, with
substantial repair and maintenance requirements, and it relies upon skilled
die sinkers and other workers in its operations. These and other factors
make it difficult for Interstate to cut certain costs quickly when sales
decline, lest its equipment or work force deteriorate and cause lost
opportunities when orders improve. As a result, Interstate's profitability
is subject to greater variation than might be true if its costs were more
variable.
KEY PERSONNEL. The operations of Interstate are the responsibility of
James Mitchell (age 49), President and Chief Executive Officer, David P.
Lauer (age 36), Chief Financial Officer and Treasurer, Everett Johnson (age
43), Vice President and General Manager - Southwest Division, David A.
Boettcher (age 46), Vice President - Sales and Louis Zietz (age 43), Vice
President and Technical Manager - Southwest Division. Franklyn Esenberg (age
63), Chairman of the Board, participates in decision-making at the Interstate
Board level. Messrs. Mitchell and Esenberg have entered into employment
agreements with Interstate, the terms of which will commence upon
consummation of the Merger and will extend for a period of three years
thereafter, in the case of Mr. Mitchell, and until December 31, 2001, in the
case of Mr. Esenberg. See THE PROPOSED MERGER--INTERESTS OF CERTAIN PERSONS
IN THE MERGER. Interstate's success depends upon its continued ability to
attract and retain these and other qualified management and technical
personnel, including die sinkers and other skilled laborers.
ENVIRONMENTAL MATTERS. Forging operations have been conducted at
Interstate's Milwaukee, Wisconsin facility since 1920 and at its Navasota,
Texas facility since 1972. Companies in the forging industry must comply
with numerous federal, state and local environmental laws and regulations.
The chief environmental issues for Interstate's operations are soil
contamination from underground storage tanks at both plant facilities, and
potential contamination from an abandoned land fill and steam filtration
ponds at the Navasota, Texas facility. Interstate has implemented
substantial recordkeeping, management procedures and practices for the
purpose of complying with environmental laws and regulations. However,
Interstate's practices in the past have, in certain instances, resulted in
required environmental remediation of certain sites. Due to the nature of
forging operations, environmental concerns are likely to arise from time to
time in the future. No assurance can be given that the cost of compliance
with environmental laws and regulations in the future will not have a
material effect on the results of operations of Interstate.
PRODUCT LIABILITY INSURANCE. Interstate maintains general liability and
umbrella insurance (including product liability) in the aggregate amount of
$12,000,000. The policy excludes coverage of claims arising in respect of
parts manufactured for nuclear powered vehicles or facilities, or for
aircraft of any kind. Although Interstate has never been required to pay
claims in excess of its insurance coverage and has never paid any claims in
respect of aircraft or nuclear forgings, uninsured losses could occur and
they could be material. Interstate believes that most companies in the
forging industry follow a similar insurance practice.
CONSIDERATIONS APPLICABLE TO CITATION
CUSTOMER AND SALES CONCENTRATION. Citation derives a substantial
portion of its sales from customers in the domestic automotive/light truck
industry (26.4% in fiscal 1994 and 30.5% in fiscal 1995) and domestic heavy
truck industry (21.0% in fiscal 1994 and 23.5% in fiscal 1995). During
fiscal 1995, Citation's top ten customers represented 26.5% of sales and its
largest customer represented 7.8% of sales. A significant reduction of
purchases by its largest customers could have a material adverse effect on
Citation's consolidated financial condition or results of operations.
CYCLICALITY. Citation's business is subject to cyclical fluctuations
based on general economic conditions and economic conditions in specific
industries served, particularly the domestic automotive/light truck and heavy
truck industries. Future recessions or a decline in the domestic markets for
automobiles, light trucks, heavy trucks or other durable goods could have a
material adverse effect on Citation's consolidated financial condition or
results of operations.
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POSSIBLE ACQUISITIONS. A significant component of Citation's historical
growth has come through acquisitions of other foundries, and Citation's
growth strategy for its business includes making additional acquisitions.
There can be no assurance that acquisitions will not have an adverse effect
upon Citation's consolidated financial condition or results of operations.
For example, Citation's operating results may be adversely affected for
several fiscal quarters following the consummation of such acquisitions while
the operations of the acquired businesses are integrated into Citation's
operations and Citation's costing and other management information systems
are implemented at the newly acquired businesses. There can be no assurance
that Citation will be able to consummate any acquisitions in the future.
Although Citation may, from time to time, receive information from other
parties regarding possible acquisitions, Citation currently has no contracts,
arrangements, agreements or understandings to acquire any other business.
ENVIRONMENTAL MATTERS. Companies in manufacturing industries must
comply with numerous federal, state and local environmental laws and
regulations. The chief environmental issues for Citation's businesses are air
emissions and solid waste disposal. Citation has implemented substantial
recordkeeping, management procedures and practices for the purpose of
complying with environmental laws and regulations and Citation believes it is
in material compliance with these laws and regulations. However, Citation's
practices have, in certain instances, resulted in non-compliance with
environmental laws and regulations and in immaterial fines and expenses
related thereto, and there can be no assurance that Citation will be able to
comply with all environmental laws and regulations in the future or that the
costs and expenses thereof or resulting from any non-compliance would not
have a material adverse effect on Citation's consolidated financial condition
or results of operations.
POTENTIAL WARRANTY LIABILITY. Citation's standard warranty is to
replace defective castings. While to date the costs associated with
Citation's warranty policy have been insignificant, an increase in the
incidence of product warranty claims and the costs associated therewith could
have a material adverse effect on Citation's consolidated financial condition
or results of operations.
DEPENDENCE ON KEY PERSONNEL. Citation's growth has been dependent
primarily upon the skills and efforts of T. Morris Hackney, Chairman of the
Board, Chief Executive Officer and President; R. Conner Warren, Executive
Vice President of Finance and Administration and Treasurer; and other key
employees. Although Citation has been successful in hiring qualified and
experienced personnel, the loss of services of either of these executive
officers or other key personnel could have a material adverse effect on
Citation's consolidated financial condition or results of operations. In
addition, Citation's future growth and development will require it to
continue to attract and retain additional qualified personnel. There can be
no assurance that Citation will be able to attract and retain personnel with
the skills and experience needed to successfully manage Citation's business
and operations.
COMPETITION. The markets for Citation's products are highly
competitive. The companies within the industry compete on the basis of price,
quality, delivery, service and engineering. Citation also competes with
manufacturers whose products are made using other materials, processes and
technologies. The industry consolidation that has occurred over the past two
decades has resulted in a significant reduction in the number of smaller
foundries and a rise in the share of production held by larger foundry
companies. Some of Citation's competitors may have greater financial
resources than Citation, may have lower production costs than Citation, or
both. There can be no assurance that Citation will be able to maintain or
improve its competitive position in its markets.
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THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus and the accompanying form of proxy is
being furnished to the shareholders of Interstate in connection with the
solicitation of proxies by the Interstate Board for use at the Special
Meeting to be held on ______________________, _________________, 1996, at
__________ _.m., local time, in the 25th Floor Conference Center at the
Offices of Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee, Wisconsin
and any adjournments or postponements thereof. This Proxy
Statement-Prospectus, the attached Notice of Special Meeting and the
accompanying form of proxy are first being mailed to Interstate shareholders
on or about _______________________, 1996.
PURPOSE OF THE SPECIAL MEETING
The purpose of the Special Meeting is to:
1. Consider and vote upon a proposal to approve the Merger Agreement,
pursuant to which, among other things, (a) Sub would be merged with and into
Interstate, with Interstate surviving the Merger as a wholly-owned subsidiary
of Citation, the separate existence of Sub ceasing, and (b) each share of
Interstate Common Stock (other than shares for which dissenters' rights are
perfected) and Option Stock outstanding immediately prior to the Effective
Time will be converted into the right to receive, without interest thereon:
(i) a cash amount payable at the Effective Time from total aggregate Closing
consideration of $45,409,000, plus $9,952.66 per day from April 1, 1996 to
and including the Closing Date, less Interstate Transaction Costs, and (ii) a
pro rata portion of the aggregate amount of the Contingent Payments, if any;
and
2. Act upon such other matters, if any, as may properly be brought
before the Special Meeting or any adjournments or postponements thereof.
The Interstate Board is not aware, as of the date of this Proxy
Statement-Prospectus, of any other matters which may properly be brought
before the Special Meeting. The WBCL provides that only business described
in the Notice of Special Meeting may be conducted at the Special Meeting. If
any other matter properly comes before the Special Meeting, including, among
other things, consideration of a motion to postpone or adjourn the Special
Meeting to another time or place, the persons named in the enclosed form of
proxy and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment.
BOARD OF DIRECTORS' RECOMMENDATION
THE INTERSTATE BOARD HAS UNANIMOUSLY ADOPTED AND APPROVED THE MERGER
AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF INTERSTATE AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT INTERSTATE SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE, VOTING RIGHTS AND SHAREHOLDER APPROVAL
The Interstate Board has fixed the close of business on _______________,
1996 as the Record Date for the Special Meeting. Only holders of record of
Interstate Common Stock, the only class of voting stock of Interstate
outstanding, on the Record Date are entitled to notice of and to vote at the
Special Meeting. On the Record Date, there were 1,313,524 shares of
Interstate Common Stock issued and outstanding. Holders of record of
Interstate Common Stock on the Record Date are entitled to one vote per share
on any matter that may properly come before the Special Meeting. A list of
shareholders of record entitled
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to vote at the Special Meeting will be available for inspection by Interstate
shareholders at Interstate's principal business office at 4051 North 27th
Street, Milwaukee, Wisconsin, prior to the Special Meeting. The list will
also be available on the day of the Special Meeting at the meeting site.
A majority of the votes entitled to be cast by shares entitled to vote,
represented in person or by proxy, will constitute a quorum of Interstate
shareholders at the Special Meeting. Abstentions and broker non-votes (i.e.,
proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to a matter with respect to which the brokers or nominees do
not have discretionary power to vote) will be considered present for the
purpose of establishing a quorum. The affirmative vote of a majority of all
the votes entitled to be cast at the Special Meeting by the holders of the
outstanding shares of Interstate Common Stock is required for approval of the
Merger Agreement. Abstentions and broker non-votes will have the same effect
as votes cast against approval of the Merger Agreement.
At the Record Date, the directors and the executive officers of
Interstate and their affiliates beneficially owned approximately 401,930
shares of Interstate Common Stock, representing 30.6% of the outstanding
shares of Interstate Common Stock entitled to vote at the Special Meeting.
All of the directors and executive officers of Interstate have indicated
their intention to vote their shares for approval of the Merger Agreement.
PROXIES
Holders of Interstate Common Stock may vote either in person or by
properly executed proxy. All shares of Interstate Common Stock represented
at the Special Meeting by properly executed proxies received prior to or at
the Special Meeting, and not revoked, will be voted at the Special Meeting in
accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted FOR approval of the
Merger Agreement.
If an individual beneficially owns shares of Interstate Common Stock
through Interstate's Savings and Retirement Plan (the "Interstate Retirement
Plan"), the proxy will serve as voting instructions for such participant's
shares held in the Interstate Retirement Plan. Shares of Interstate
Retirement Plan participants will be voted by the trustee of the Interstate
Retirement Plan in accordance with each participants' voting instructions.
If a participant in the Interstate Retirement Plan does not return a proxy,
the trustee will direct the vote of the shares held in such participant's
account.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by
(i) filing with the Secretary of Interstate, at or before the taking of the
vote at the Special Meeting, a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a later dated proxy relating to the
same shares and delivering it to the Secretary of Interstate before the
taking of the vote at the Special Meeting, or (iii) attending the Special
Meeting and voting in person (although attendance at the Special Meeting will
not in and of itself constitute a revocation of a proxy).
The Special Meeting may be postponed or adjourned from time to time
without notice other than such notice as may be given at the Special Meeting
or any postponement or adjournment thereof, including, without limitation, if
a quorum is not obtained, or if fewer shares are likely to be voted in favor
of approval of the Merger Agreement than the number required for approval.
Any business for which notice has been given may be transacted at any such
postponed or adjourned meeting. If the Special Meeting is postponed or
adjourned for the purpose of obtaining additional proxies or votes or for any
other purpose, at any subsequent reconvening of the Special Meeting, all
proxies will be voted in the same manner as such proxies would have been
voted at the original convening of the Special Meeting (except for any
proxies which have theretofore effectively been revoked or withdrawn),
notwithstanding that they may have been effectively voted on the same or any
other matter at a previous meeting.
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Interstate will bear the cost of solicitation of proxies for the Special
Meeting. In addition to use of the mails, proxies may be solicited
personally or by telephone, facsimile or other means of communication by
directors, officers and employees of Interstate, who will not be specially
compensated for such activities, but may be reimbursed for their
out-of-pocket expenses. Arrangements will be made with custodians, nominees
and fiduciaries for the forwarding of proxy solicitation materials to
beneficial owners of shares of Interstate Common Stock held of record by such
custodians, nominees and fiduciaries, and Interstate will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
THE PROCEDURE FOR THE EXCHANGE OF YOUR SHARES AFTER THE MERGER IS CONSUMMATED
IS SET FORTH ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS. See THE PROPOSED
MERGER--EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS.
THE PROPOSED MERGER
THE FOLLOWING INFORMATION CONCERNING THE MERGER, INSOFAR AS IT RELATES
TO THE MERGER AGREEMENT, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MERGER AGREEMENT WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT-PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. YOU ARE URGED TO
CAREFULLY READ THE ENTIRE MERGER AGREEMENT.
BACKGROUND OF THE MERGER
The Interstate Board has long recognized that, given the nature and size
of Interstate's shareholder base, Interstate shareholders have only limited
opportunities to sell all or a portion of their Interstate Common Stock,
since there is no ready secondary market. During the last five years,
several holders of significant blocks of Interstate Common Stock have
expressed to the Interstate Board their desire for liquidity of their
investment in the Interstate Common Stock. During that period, the
Interstate Board and management have actively pursued a number of possible
transactions with a view to providing liquidity to the Interstate
shareholders.
During 1992, the Interstate Board actively explored the possibility of
an initial public offering of Interstate stock. The purposes of the offering
were to raise capital for Interstate to assist in Interstate's continuing
capital needs and to provide the Interstate shareholders with improved
liquidity. That transaction was not consummated.
During late 1993, Interstate conducted extensive, but unsuccessful,
discussions with an unrelated third party regarding a sale of Interstate. In
April 1994, Interstate effected a self tender offer for 750,006 shares of
Interstate Common Stock and shares underlying Interstate vested stock options
at a price of $14 per share. This represented approximately 34% of the then
fully diluted Interstate Common Stock.
During the years in the period of January 1, 1992 through December 31,
1995, Interstate purchased 9,236 shares, 21,955 shares, 12,178 shares and
11,260 shares, respectively, from participants in the Interstate Retirement
Plan at prices ranging from $11.25 per share in 1992 to $18.00 in 1995 (there
being no such purchases between December 31, 1995 and March 31, 1996). See
MARKET PRICES OF INTERSTATE COMMON STOCK AND DIVIDENDS.
In early November 1995, Mr. Franklyn Esenberg, Chairman of Interstate,
was approached by Mr. Alan T. Craft concerning a possible transaction between
Interstate and Citation. Mr. Craft is a manufacturer's representative for
Interstate and a Director Emeritus of Interstate and was formerly a member of
the Interstate Board from 1988 to 1991. Mr. Craft's firm, Craft Associates,
is a sales representative for a subsidiary of Citation, Mabry Foundry
Company, Ltd. Mr. Craft will receive a finders
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fee of $500,000 to be paid by Citation for the acquisition of Interstate.
Mr. Craft discussed with Mr. Esenberg the history and current status of
Citation, Mr. Craft's relationship with Mr. T. Morris Hackney, Chairman of
Citation, Citation's recent acquisitions and Mr. Craft's belief that there
was the possibility of a mutually beneficial transaction between Interstate
and Citation.
Messrs. Hackney, Esenberg and Craft met in early November 1995. The
meeting included a general discussion of Interstate's history, business,
management, assets, liabilities, performance, financial condition and
prospects. The meeting also included a discussion of Citation's acquisition
practices and business. The meeting concluded with a sense that further
discussions between the two organizations should continue.
On December 12, 1995, Mr. Esenberg and Mr. James Mitchell, a Director
and President and Chief Executive Officer of Interstate, together with a
representative of Baird, met with Mr. Hackney and R. Conner Warren, a
Director and Executive Vice President of Finance and Administration and
Treasurer of Citation. The meeting included a detailed discussion of
Interstate's business, management, strategy, performance and prospects. The
meeting also included a discussion concerning Citation's business. The
meeting concluded with commitments by Citation to review the information
concerning Interstate and by both parties to meet again in the near future.
The Interstate Board met on December 19, 1995. Mr. Esenberg briefed the
Interstate Board on the discussions with Citation. Quarles & Brady, counsel
for Interstate, discussed the legal responsibilities of the Board in
connection with such a potential transaction. Baird was present at the Board
meeting and advised the Interstate Board on the process that Baird would go
through to evaluate such a transaction in order to provide an opinion as to
whether or not the consideration proposed to be paid in such a transaction is
fair to Interstate's shareholders from a financial point of view. The Board
unanimously authorized Messrs. Esenberg and Mitchell, together with counsel,
to continue the discussions with Citation.
On January 3 and 4, 1996, Messrs. Hackney, Esenberg and Mitchell met to
continue the discussions. Following a discussion of various matters relating
to Interstate's business and financial condition, Mr. Hackney made a proposal
by which Citation would acquire all of the outstanding capital stock of
Interstate for a cash purchase price of $40,000,000. After discussion
concerning the proposal, Messrs. Esenberg and Mitchell stated that they would
meet with the Interstate Board to further discuss the overall matter and the
specific proposal.
The Interstate Board met again on January 11, 1996. The Board formally
engaged Baird to evaluate and render an opinion as to whether or not the
consideration to be paid in a possible transaction with Citation is fair to
the Interstate shareholders from a financial point of view. The Interstate
Board considered Citation's proposal, the current business and financial
condition of Interstate, the prospects for Interstate, the publicly available
information concerning Citation, the interests of Interstate's shareholders
and the effect of such a transaction on Interstate's employees and customers.
The Interstate Board unanimously approved proceeding with a transaction with
Citation at terms that were greater than those offered by Citation. The
Interstate Board instructed Messrs. Esenberg and Mitchell to meet again with
Citation to discuss the new terms and, if such new terms were agreeable to
Citation, to execute a letter of intent.
Messrs. Esenberg and Mitchell, together with assistance from counsel,
then conducted a series of negotiations and discussions with representatives
of Citation. A letter of intent was signed on January 19, 1996 providing for
the purchase of all of the outstanding capital stock of Interstate by
Citation for a total cash purchase price of $43,600,000 at closing plus the
payment of certain contingent cash payments, the latter element being
negotiated on the basis of the expected future sales resulting from
Interstate's new 14,000 ton mechanical forging press. See DESCRIPTION OF
CONTINGENT PAYMENTS.
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During the following months, Citation and Interstate executed a
Confidentiality Agreement and representatives of Citation and Interstate and
their respective counsel engaged in numerous discussions and conducted
several meetings in order to negotiate and prepare the definitive Merger
Agreement. Citation also conducted due diligence on Interstate.
The Interstate Board met on February 7, 1996 and March 7, 1996 and
received updates on the status of the Citation transaction. During this
period, representatives of Interstate continued the negotiations with
Citation concerning the price, resulting in a transaction with: (a) a cash
price at Closing of $45,409,000, less Interstate's transaction costs, (b) the
payment of certain contingent cash payments and, (c) the payment of cash for
Interstate's outstanding stock appreciation rights ("SARs") without any
reduction in the cash price. See DESCRIPTION OF CONTINGENT PAYMENTS. The
Interstate Board also considered other possible transactions for Interstate,
including a possible redemption of certain Interstate Common Stock, a sale of
all of the outstanding Interstate Common Stock to an unrelated third party
and a sale of all of the Interstate Common Stock to a group headed by
Interstate management. All of these other proposed transactions would have
included proposed consideration that was significantly less than the proposed
consideration to be received by Interstate shareholders in the transaction
with Citation.
On May 8, 1996, the Interstate Board met with representatives of Baird
and legal counsel. Baird reviewed financial and other information concerning
Interstate and Citation and the proposed consideration to be received by
Interstate shareholders. Counsel outlined in detail the terms and conditions
of the proposed Merger Agreement, the respective employment agreements
between Interstate and Messrs. Esenberg and Mitchell and related documents.
The Interstate Board was informed at this meeting that a customer of
Interstate, who was unwilling to consent to the Merger, would have the right
to terminate its relationship with Interstate based on the change in
Interstate ownership that would result from the Merger. The Interstate Board
directed management and counsel to discuss this matter with the customer and
directed management and Baird to consider the effects (as reflected in
revised projections to be prepared by Interstate management) of a termination
of Interstate's relationship with the customer on the consideration to be
received in the Citation transaction.
On May 13, 1996, the Interstate Board met with representatives of Baird
and legal counsel. Interstate management informed the Interstate Board that
the customer had continued to state that he would not consent to the Merger.
The Interstate Board considered the effect of the possible termination of
Interstate's relationship with the customer. Baird reviewed various
financial and other information and rendered to the Interstate Board its
opinion to the effect that, as of the date of said opinion, the consideration
to be received by the holders of Interstate Common Stock was fair, from a
financial point of view, to such holders (other than Citation, Sub and their
respective affiliates). See --OPINION OF ROBERT W. BAIRD & CO. INCORPORATED
and APPENDIX C hereto. Legal counsel reviewed the final forms of the Merger
Agreement, the respective employment agreements between Interstate and
Messrs. Esenberg and Mitchell and related documents. The Interstate Board
discussed the advice they had received at the various Interstate Board
meetings and the price that would be paid to Interstate shareholders in the
Citation transaction. The Interstate Board also considered and discussed the
effects of the Citation transaction on Interstate's customers and employees.
After such discussions, the Interstate Board unanimously adopted and
approved the Merger Agreement, the respective employment agreements between
Interstate and Messrs. Esenberg and Mitchell and related documents.
Following the Interstate Board meeting, on May 16, 1996 the Merger Agreement,
the employment agreement between Interstate and Franklyn Esenberg and the
employment agreement between Interstate and James Mitchell were executed.
REASONS FOR THE MERGER; RECOMMENDATION OF THE INTERSTATE BOARD
CITATION. Citation's business strategy is to be a broad-based
components supplier to the durable goods industry. A significant element of
that strategy has been growth through acquisitions, as well as
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expansion of markets and customer bases, and expansion into other casting and
related technologies. Citation historically has expanded its business
primarily through the acquisition of other ductile, gray and high-alloy iron,
aluminum and steel casting foundries. Recent acquisitions have introduced it
to additional technologies including aluminum permanent and semi-permanent
molding methods, high-alloy casting metallurgy, intricate design casting and
gray, ductile and high-alloy iron shell sand molding processes. In line with
its growth strategy, Citation believes the acquisition of Interstate will
allow Citation to broaden its product offerings in a product line which is
technologically similar to Citation's expertise and is used in primarily the
same markets, thus complementing Citation's existing operations.
INTERSTATE. The Interstate Board believes that the terms of the Merger,
which are the result of arm's length negotiations between representatives of
Interstate and Citation, are fair to, and in the best interests of,
Interstate and its shareholders.
In reaching its decision to adopt and approve the Merger Agreement, the
Interstate Board considered a number of factors. While the Interstate Board
did not assign specific or relative weights to any factors, the following
factors were among the factors considered:
- The consideration to be received by Interstate shareholders (see --
PRINCIPAL TERMS OF THE MERGER);
- The fact that the Interstate shareholders would achieve liquidity of
their investment in Interstate as a result of the Citation
transaction (see --BACKGROUND OF THE MERGER);
- Interstate's business, results of operations, financial condition and
prospects if Interstate were to remain independent;
- The fact that Interstate's business is both highly competitive and
cyclical based on the capital goods nature of Interstate's customers
and the outlook for the capital goods industry (see SPECIAL
CONSIDERATIONS--CONSIDERATIONS APPLICABLE TO INTERSTATE);
- The fact that Interstate's business is capital intensive and
Interstate's needs for financing or equity capital and the continued
availability and terms of such financing or equity capital (see
SPECIAL CONSIDERATIONS--CONSIDERATIONS APPLICABLE TO INTERSTATE);
- Interstate's ability to sustain and increase earnings and dividends;
- The opinion of Baird to the effect that, as of May 13, 1996, the
consideration to be received by the holders of Interstate Common
Stock was fair, from a financial point of view, to such holders
(other than Citation, Sub and their respective affiliates)
(see --OPINION OF ROBERT W. BAIRD & CO. INCORPORATED and APPENDIX C
hereto);
- The terms of the Merger Agreement (see THE PROPOSED MERGER and
APPENDIX A hereto); and
- The impact of the Merger on employees and customers of Interstate.
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THE INTERSTATE BOARD HAS UNANIMOUSLY ADOPTED AND APPROVED THE MERGER
AGREEMENT AND BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE
BEST INTERESTS OF, INTERSTATE SHAREHOLDERS. THE INTERSTATE BOARD UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF INTERSTATE VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT.
OPINION OF ROBERT W. BAIRD & CO. INCORPORATED
On January 25, 1996, Interstate entered into an engagement letter
agreement with Baird pursuant to which Baird was retained to render its
opinion as to whether or not the Consideration (consisting of the Company
Stock Price (as defined herein under --PRINCIPAL TERMS OF THE MERGER--MERGER
CONSIDERATION) and the per share Contingent Payments, if any (as defined
herein under DESCRIPTION OF CONTINGENT PAYMENTS)) is fair, from a financial
point of view, to the holders of Interstate Common Stock (other than
Citation, Sub and their respective affiliates). On May 13, 1996, Baird
rendered its opinion to the Interstate Board to the effect that, as of such
date, the Consideration was fair, from a financial point of view, to the
holders of Interstate Common Stock (other than Citation, Sub and their
respective affiliates).
THE FULL TEXT OF BAIRD'S OPINION, DATED MAY 13, 1996, WHICH SETS FORTH
THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY BAIRD IN RENDERING ITS
OPINION, IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT-PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. BAIRD'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS, AS OF MAY 13, 1996 AND FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO THE HOLDERS OF INTERSTATE SHARES (OTHER THAN CITATION, SUB
AND THEIR RESPECTIVE AFFILIATES) AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY INTERSTATE SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER AGREEMENT. BAIRD DID NOT MAKE RECOMMENDATIONS TO
INTERSTATE CONCERNING THE AMOUNT OF CONSIDERATION TO BE PAID TO INTERSTATE
SHAREHOLDERS OR PARTICIPATE IN THE NEGOTIATION OF THE MERGER CONSIDERATION
(AS DEFINED HEREIN UNDER --PRINCIPAL TERMS OF THE MERGER--MERGER
CONSIDERATION). THE SUMMARY OF BAIRD'S OPINION SET FORTH BELOW IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED AS
APPENDIX C. SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS
ENTIRETY.
In conducting its investigation and analysis in arriving at its opinion
attached as Appendix C, Baird reviewed such information and took into account
such financial and economic factors as it deemed relevant under the
circumstances. In that connection, Baird among other things (i) reviewed
certain internal information, primarily financial in nature, including
projections, concerning the business and operations of Interstate furnished
to Baird by Interstate for purposes of its analysis, as well as historical
financial information relating to Interstate's financial position and
operating results; (ii) reviewed certain publicly available information,
including but not limited to, Citation's recent filings with the Commission
and equity analyst research reports prepared by various investment banking
firms; (iii) reviewed a draft of the Merger Agreement in the form presented
to the Interstate Board; (iv) compared the financial position and operating
results of Interstate with those of publicly traded companies Baird deemed
relevant; and (v) compared the proposed financial terms of the Merger with
the financial terms of certain other business transactions that it considered
relevant to its inquiry. Baird held discussions with certain members of
Interstate's and Citation's respective senior management concerning
Interstate's and Citation's historic and current financial condition and
operating results, as well as the future prospects of Interstate and
Citation, respectively. Baird also considered such other information,
financial studies, analysis and investigations and financial, economic and
market criteria which it deemed relevant for the preparation of its opinion.
Baird was not requested to, and did not, solicit third party indications of
interest in acquiring all or any part of Interstate. The Merger
Consideration was determined by Interstate and Citation in arm's length
negotiations. Interstate did not place any limitation upon Baird with
respect to the procedures followed or factors considered by Baird in
rendering its opinion.
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In arriving at its opinion, Baird assumed and relied upon the accuracy
and completeness of all of the financial and other information provided to it
by or on behalf of Interstate and Citation, or publicly available, and was
not engaged, and did not attempt, to verify any such information. Baird
assumed that all material assets and liabilities (contingent or otherwise,
known or unknown) were as set forth on Interstate's financial statements.
With respect to projections, Baird assumed that they had been reasonably
prepared and represented the best available estimates and good faith
judgments of Interstate management as to the future performance of
Interstate. In conducting its review, Baird did not make nor obtain an
independent valuation or appraisal of any of the assets or liabilities
(contingent or otherwise) of Interstate, nor did Baird make a physical
inspection of the properties or facilities of Interstate. Baird's opinion
was based upon economic, monetary and market conditions as they existed on
and to the extent they could be evaluated as of the date of such opinion and
did not predict or take into account any changes which may occur or
information which may become available thereafter.
In connection with preparing its opinion on May 13, 1996, Baird
conducted a variety of financial analyses summarized below with respect to
Interstate and Citation.
IMPLIED VALUE OF CONSIDERATION. Based on an assumed Effective Time of
either July 15, 1996 or August 31, 1996 and assumed transaction costs of
$375,000, Baird calculated the estimated value of the Consideration to be
approximately $34.16 to $36.83 per share, consisting of an estimated Company
Stock Price of between $31.91 and $32.23 per share and, based on the assumed
realization of the projections prepared by Interstate management of future
financial performance of Interstate, an implied present value of the
Contingent Payments between $2.25 and $4.60 per share. The actual Contingent
Payment amounts are dependent upon a number of factors, including the actual
financial results of Interstate after completion of the Merger. Accordingly,
no assurance can be given that the actual Contingent Payment amounts will be
as estimated.
ANALYSIS OF INTERSTATE'S VALUATION MULTIPLES. Baird calculated multiples
of the implied value of the Consideration to Interstate's latest twelve
months ended March 31, 1996 ("LTM") net income and its projected net income
for calendar years 1996 and 1997 (based on management's estimates) and
multiples of Interstate's Enterprise Value (defined as the Consideration
multiplied by the number of fully diluted shares of Interstate Common Stock,
plus (i) the book value of total debt pro forma for redemption of all SARs,
less (ii) cash and cash equivalents, including cash surrender value of life
insurance and cash which would be received by Interstate if all outstanding
stock options were exercised) to its LTM revenues, its LTM operating income
before depreciation and amortization, interest and taxes ("EBITDA") and its
LTM operating income ("EBIT"). The calculations resulted in ratios of the
Consideration to net income ("P/E Ratios") of 8.7x to 9.4x based on LTM
results; 9.5x to 10.3x based on projected 1996 results; and 7.8x to 8.4x
based on projected 1997 results. The ratio of Enterprise Value to LTM
revenues was 0.84x to 0.88x, the ratio of Enterprise Value to LTM EBITDA was
5.3x to 5.6x and the ratio of Enterprise Value to LTM EBIT was 7.1x to 7.5x.
ANALYSIS OF SELECTED PUBLICLY TRADED INTERSTATE COMPARABLE COMPANIES.
Baird reviewed certain publicly available financial information as of the
most recently reported period and stock market information as of May 10, 1996
for certain selected publicly traded companies which Baird deemed relevant.
Such comparable companies consisted of: Amcast Industrial Corporation,
Atchison Casting Corporation, Fansteel Inc., Intermet Corporation, Sifco
Industries, Inc., Sinter Metals, Inc. and Wescast Industries. For each
comparable company, Baird calculated multiples as of May 10, 1996 of
Enterprise Value (defined as the market value of the common equity plus the
book value of total debt and preferred stock, less excess cash and cash
equivalents) to LTM revenues, LTM EBITDA and LTM EBIT. Baird then compared
these multiples to the relevant Interstate multiples based on the Enterprise
Value implied by the Consideration. An analysis of the multiples of
Enterprise Value to LTM revenues, LTM EBITDA and LTM EBIT yielded 0.84x to
0.88x, 5.3x to 5.6x, and 7.1x to 7.5x, respectively, for Interstate compared
to low, median and high multiples, respectively, of 0.50x, 0.72x and 1.50x
LTM revenues; 5.0x, 6.1x and 8.0x LTM EBITDA; and 7.3x, 8.2x and 11.7x LTM
EBIT for Interstate's comparable companies. Baird also calculated P/E Ratios
based on the
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Consideration for Interstate and as of May 10, 1996 for each comparable
company based on market stock prices as of such date and LTM earnings per
share and estimated earnings per share (based on median Firstcall estimates)
for calendar years 1996 and 1997. An analysis of the P/E Ratios for
Interstate yielded 8.7x to 9.4x LTM net earnings, 9.5x to 10.3x projected
1996 net earnings, and 7.8x to 8.4x projected 1997 net earnings, compared to
low, median and high multiples, respectively, of 9.7x, 15.4x and 18.8x LTM
earnings per share; 9.4x, 12.8x and 15.0x estimated 1996 earnings per share;
and 7.8x, 9.9x and 11.5x estimated 1997 earnings per share for Interstate's
comparable companies.
ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. Baird reviewed
selected transactions involving the acquisition of all or part of companies
in businesses which Baird deemed relevant. Such comparable acquisition
transactions, which were consummated between May 1994 and March 1996
consisted of (acquiror/acquired company): Wyman-Gordon Company/Cameron Forged
Products Company; Citation Corporation/Iroquois Foundry Company; Citation
Corporation/Oberdorfer Industries; Citation Corporation/Berlin Foundry
Corporation; Citation Corporation/Pennsylvania Steel Foundry and Machine
Company; Citation Corporation/Castwell Products Company; Johnstown American
Industries, Inc./Truck Components, Inc.; Bar Technologies, Inc. (formerly
known as BRW Steel Corporation)/Bliss & Laughlin Industries and Citation
Corporation/Southern Aluminum Castings Company. Such transactions were
chosen based on a review of acquired companies which possessed general
business, operating and financial characteristics representative of companies
which supply metal products and components to the original equipment
manufacturing market. For each comparable transaction where the relevant data
was available, Baird calculated the multiples of Enterprise Value (based on
the actual consideration paid for the equity of the acquired company plus the
book value of total debt assumed, less cash and cash equivalents) to LTM
revenues, LTM EBITDA and LTM EBIT; and calculated P/E Ratios based on LTM net
earnings. Baird then compared those multiples to the relevant Interstate
multiples based on the Consideration. For the transactions selected, these
calculations yielded multiples of Enterprise Value to LTM revenues, LTM
EBITDA and LTM EBIT of 0.84x to 0.88x, 5.3x to 5.6x, and 7.1x to 7.5x,
respectively, for Interstate, compared to low, median and high multiples,
respectively, of 0.32x, 0.47x and 0.96x LTM revenues; 3.3x, 4.6x and 5.4x LTM
EBITDA; and 4.0x, 5.7x and 6.0x LTM EBIT for the comparable acquisition
transactions. An analysis of the P/E Ratios based on LTM results yielded 8.7x
to 9.4x for Interstate compared to low, median and high multiples,
respectively, of 5.9x, 10.0x and 15.5x, respectively, for the comparable
acquisition transactions.
DISCOUNTED CASH FLOW ANALYSIS. Baird performed a discounted cash flow
analysis of Interstate on a stand alone basis using Interstate management's
projections of future EBIT and free cash flow without taking into account
cost savings and synergies which may be realized following the Merger. In
such analysis, Baird assumed terminal value multiples of 5.0x to 7.0x EBIT in
the year 2000 and discount rates of 12.0% to 14.0%. Such analyses produced
implied values of Interstate ranging from $26.44 to $41.17 per share with a
median value of $33.55 per share.
LEVERAGED TRANSACTION ANALYSIS. Baird performed an analysis of the
maximum price an acquiror would be likely to pay for Interstate in a
leveraged transaction, based on the achievement of benchmark returns for debt
and equity investors and financing terms generally available in the current
market environment. This analysis did not take into account cost savings
and/or synergies that might be available to a new owner of Interstate. The
Consideration exceeded the values generated by this analysis.
The foregoing summary does not purport to be a complete description of
the analyses performed by Baird or of its presentations to the Interstate
Board. The preparation of financial analyses and a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Baird believes that its analyses (and the summary set
forth above) must be considered as a whole, and that selecting portions of
such analyses and of the factors considered by Baird, without considering all
of such analyses and factors, could create an incomplete view of the
processes underlying the analyses conducted by Baird and its opinion. Baird
did not attempt to assign specific weights to particular analyses. Any
estimates contained in Baird's analyses are not necessarily indicative of
actual values, which may be
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significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold. Because such estimates
are inherently subject to uncertainty, Baird does not assume responsibility
for their accuracy.
Baird, as part of its investment banking business, is continually
engaged in the evaluation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes.
Interstate retained Baird because of its experience and expertise in the
valuation of businesses and their securities in connection with mergers and
acquisitions. In the ordinary course of business, Baird may from time to
time trade equity securities of Interstate and Citation for its own account
and for accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities. In addition, the President and
Chief Executive Officer of Baird is a director of Interstate and the
beneficial owner of shares of Interstate Common Stock.
Pursuant to the January 25, 1996 engagement letter agreement, Interstate
agreed to pay Baird a retainer fee of $25,000 and a fairness opinion fee of
$87,500, payable upon delivery of its opinion, regardless of the conclusions
reached by Baird in such opinion and regardless of whether any transaction is
consummated. Interstate has also agreed to reimburse Baird for its
reasonable out-of-pocket expenses, including reasonable fees and
disbursements of counsel. Interstate has also agreed to indemnify Baird, its
affiliates and their respective directors, officers, partners, employees and
agents and controlling persons against certain liabilities relating to or
arising out of its engagement, including liabilities under the federal
securities laws. Baird has rendered from time to time various investment
banking and other financial advisory services to Interstate for which it has
received its customary compensation.
PRINCIPAL TERMS OF THE MERGER
EFFECT OF THE MERGER. If the Merger is approved by at least a majority
of all the votes entitled to be cast at the Special Meeting by the holders of
the outstanding shares of Interstate Common Stock and the other conditions to
consummation of the Merger specified in the Merger Agreement are satisfied or
waived, then Sub will be merged with and into Interstate, with Interstate
being the Surviving Corporation in the Merger. The closing to consummate the
Merger (the "Closing") will occur at a date and time mutually agreed to by
the parties to the Merger Agreement that is no later than the fifth business
day after satisfaction of the conditions to consummation of the Merger set
forth in the Merger Agreement (the "Closing Date"). The Merger will be
effective upon filing the Articles of Merger with the Wisconsin Department of
Financial Institutions, such filing to occur as soon as practicable on or
after the Closing Date (the "Effective Time"). It is currently anticipated
that, subject to the receipt of all requisite regulatory approvals and other
factors, the Effective Time will be the same date as the Special Meeting. At
and after the Effective Time, the shareholders of Interstate will no longer
have an equity interest in the Surviving Corporation. The Surviving
Corporation will be a wholly-owned subsidiary of Citation. As of the
Effective Time, by operation of law, the separate corporate existence of Sub
will cease and the Surviving Corporation will succeed to all of the assets
and liabilities of Sub.
MERGER CONSIDERATION. As of the Effective Time, and without any action
on the part of the holders thereof, each issued and outstanding share of
Interstate Common Stock, except shares owned by shareholders who perfect
dissenters' rights, will be converted into the right to receive, without
interest thereon, an amount in cash equal to the Company Stock Price (as
defined below) plus a pro rata portion of the aggregate amount of any
Contingent Payments, each of which is further described herein. In addition,
each share of Option Stock will be converted into the right to receive an
amount in cash equal to the Company Stock Price less the per share exercise
price of the related option (and less any required withholding taxes) (the
"Option Stock Price"), plus a pro rata portion of the aggregate amount of any
Contingent Payments. The consideration to be paid to the holders of
Interstate Common Stock and the holders of Option Stock shall herein be
referred to as the "Merger Consideration."
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The Company Stock Price (which will be rounded to four decimal places)
shall be equal to the sum of the Closing Merger Payment (as defined below)
and the aggregate amount of the combined option exercise prices of all Option
Stock of $1,668,404 (the "Option Stock Exercise Price"), divided by
1,496,474, which represents the total number of shares of Interstate Common
Stock and Option Stock that will be outstanding as of the Effective Time
(collectively, the "Closing Stock"). The Closing Merger Payment shall be
equal to $45,409,000, less the Interstate Transaction Costs, plus a per diem
accrual equal to $9,952.66 multiplied by the number of calendar days from
April 1, 1996 to and including the Closing Date. Interstate Transaction
Costs will include only costs and expenses directly associated with the
transactions contemplated by the Merger Agreement, including, without
limitation, Interstate's attorneys and accountants' fees (including fees
associated with the preparation and filing of this Registration Statement);
fees and expenses of the Paying Agent (as defined herein) and Baird; costs of
providing certain real estate surveys and title insurance as required by the
Merger Agreement; distributions to dissenting shareholders in excess of the
Company Stock Price; and prohibited shareholder distributions.
For example, if the Closing were to occur on August 31, 1996, and the
Interstate Transaction Costs were equal to $375,000 (actual Interstate
Transaction Costs could be higher or lower), the Company Stock Price would be
equal to $32.2259 per share as follows:
1. Closing Merger Payment = $46,556,757
Starting Point of Closing Merger Payment Calculation $45,409,000
Less: Interstate Transaction Costs (375,000)
Plus: Per Diem of $9,952.66
multiplied by 153 days ($9,952.66 X 153) 1,522,757
-----------
Closing Merger Payment $46,556,757
-----------
-----------
2. Company Stock Price = $32.2259
Closing Merger Payment $46,556,757
Plus: Option Stock Exercise Price 1,668,404
-----------
Total $48,225,161
Divided by Total Number of Shares
of Closing Stock DIVIDED BY 1,496,474
-----------
Company Stock Price $ 32.2259
-----------
-----------
Promptly upon surrender of their Interstate Common Stock certificates,
Interstate shareholders of record as of the Effective Time will be entitled
to receive a cash amount equal to the number of shares of Interstate Common
Stock surrendered multiplied by the Company Stock Price. Promptly upon
surrender of their Option Agreements, holders of Option Stock will be
entitled to receive a cash amount equal to the number of shares of Option
Stock surrendered multiplied by the applicable Option Stock Price. See
- --EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS.
Each of the Closing Stockholders will also be entitled to their pro rata
share of the aggregate amount of any Contingent Payments based on the
combined total number of shares of Interstate Common Stock and Option Stock
outstanding at the Effective Time. Pursuant to the terms of the Merger
Agreement, the Contingent Payments, if any, that will be made to the Closing
Stockholders, consist of an aggregate amount equal to five (5) times the
amount by which (x) the average annual net earnings of Interstate before
interest and income and franchise taxes during the three year period from
January 1, 1996 through December 31, 1998 exceeds (y) $9,500,000. The
calculation and payment of any Contingent Payments that may be due in the
future are described in detail herein under DESCRIPTION OF CONTINGENT
PAYMENTS. Reference should also be made to Section 1.9(d) of the Merger
Agreement, a copy of which is attached hereto as Appendix A.
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CONDITIONS TO CLOSING
The respective obligations of the parties to consummate the Merger are
subject to the fulfillment or waiver on or before the Closing Date of certain
conditions specified in the Merger Agreement. The conditions include (among
others): (1) the representations and warranties made by the respective
parties in the Merger Agreement shall be true and correct in all material
respects on and as of the date of the Merger Agreement and the Closing Date,
and all of the terms and conditions of the Merger Agreement to be performed
or complied with by the Closing by the respective parties shall have been
performed or complied with in all material respects, including the delivery
of all required Closing documents and payments; (2) the consents and
approvals of all persons or entities, including governmental agencies whose
consent is required to consummate the transactions contemplated by the Merger
Agreement, shall have been obtained, including the expiration of all
applicable waiting periods under the HSR Act; (3) at the Closing Date there
shall be no litigation or governmental investigation in which an injunction
or other order or decree has been obtained against the transactions
contemplated by the Merger Agreement; (4) there shall not have been any
material casualty loss affecting the respective parties, and there shall not
have been any material adverse change in the financial condition of the
respective parties between their respective fiscal year ends and the Closing
Date; (5) holders of Interstate Common Stock exercising dissenters' rights
under the WBCL shall hold shares convertible into the right to receive an
aggregate of less than 10% of the Closing Merger Payment; (6) the Merger
Agreement must have been approved by the affirmative vote of the holders of
Interstate Common Stock constituting at least a majority of all votes
entitled to be cast on the Merger Agreement; (7) the Registration Statement
shall have become effective under the Securities Act, no stop order
suspending its effectiveness shall be in effect, and no stop order with
respect thereto shall be pending; (8) the Contingent Payments shall have been
qualified under all applicable state securities laws without unreasonable
effort or expense; and (9) the opinion of Baird attached hereto as Appendix C
shall not have been withdrawn as of the date of the Special Meeting. No
assurance can be given as to when, if ever, all of the conditions to Closing
will be satisfied or waived.
WAIVER, AMENDMENT AND TERMINATION
At any time before the Effective Time, whether before or after the
Merger is approved by Interstate shareholders at the Special Meeting, each
party to the Merger Agreement (by action taken by their respective Board of
Directors) may waive any of the terms or conditions of the Merger Agreement,
or agree to any amendment of the Merger Agreement, without seeking further
approval of Interstate shareholders, as long as any such amendment does not
materially adversely affect the Closing Stockholders. Any such waiver or
amendment must be executed in writing.
At any time before the Effective Time, whether before or after the
Merger is approved by Interstate shareholders at the Special Meeting, the
Merger Agreement may be terminated, and the Merger abandoned, by (1) the
mutual consent of Citation and Interstate, (2) written notice from either
Citation or Interstate to the other party if the conditions required of the
other party shall not have been fulfilled by August 31, 1996, (3) by
Interstate, if it agrees to a competing offer or transaction (see --COMPETING
TRANSACTIONS), or (4) by written notice from either Interstate or Citation to
the other party if the Closing has not occurred on or before September 30,
1996.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties (some of which are subject to specified exceptions) of each of
Interstate, Citation and Sub, relating to, among other things: as to
Interstate, (a) due organization, power and existence; (b) the validity,
legality and enforceability of the Merger Agreement; (c) the absence of any
governmental, regulatory or other authorization, consent or approval
necessary to consummate the Merger; (d) the absence of any conflict with its
articles of incorporation or bylaws, with applicable law or with certain
contracts; (e) its capital structure; (f) compliance with applicable laws;
(g) accuracy of certain financial statements of Interstate; (h) absence of
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material changes to the business of Interstate since December 31, 1995; (i)
material leases; (j) valid title to and ownership of assets; (k) good
operating condition of equipment; (l) material contracts; (m) assets
necessary for the conduct of business; (n) insurance coverages; (o) absence
of judgments and decrees; (p) absence of material pending or threatened
litigation; (q) absence of foreseeable material adverse changes in business;
(r) intellectual property rights; (s) matters involving employee benefit
plans; (t) employees, consultants and agents; (u) conduct of business in the
ordinary course since December 31, 1995; (v) validity and collectability of
accounts receivable; (w) administration of books and records in accordance
with generally accepted accounting principles ("GAAP"); (x) customers'
toolings and dies; (y) absence of environmental law violations; (z)
indebtedness; (aa) taxes; and (bb) accurate disclosure of statements of fact
in the Merger Agreement and related schedules: as to Citation and Sub, (a)
due organization, power and existence; (b) authorization, validity, legality
and enforceability of the Merger Agreement; (c) the absence of any
governmental, regulatory or other authorization, consent or approval
necessary to consummate the Merger; (d) the absence of any conflict with
their certificate/articles of incorporation or bylaws, with applicable law or
with certain contracts; (e) the filing of all required reports and other
documents with the Commission, and the accuracy of the information contained
therein; (f) absence of material changes, except as publicly disclosed, since
October 1, 1995; (g) absence of foreseeable material adverse changes in
business; (h) absence of judgments and decrees; (i) absence of material
pending or threatened litigation; and (j) accurate disclosure of statements
of fact in the Merger Agreement. Each of Interstate, Citation and Sub have
also made certain representations and warranties regarding the accuracy of
the information provided by it for use in this Proxy Statement-Prospectus and
the Registration Statement.
RIGHTS OF DISSENTING SHAREHOLDERS
SUBJECT TO CONSUMMATION OF THE MERGER, INTERSTATE SHAREHOLDERS MAY
DEMAND TO BE PAID THE FAIR VALUE OF THEIR SHARES OF INTERSTATE COMMON STOCK
IN CASH, IF THEY FOLLOW THE PROCEDURES SPECIFIED Sections 180.1301 THROUGH
180.1331 OF THE WBCL ("SUBCHAPTER XIII"). THE FOLLOWING SUMMARY OF
SUBCHAPTER XIII IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
THEREOF CONTAINED IN APPENDIX B TO THIS PROXY STATEMENT-PROSPECTUS, WHICH IS
INCORPORATED HEREIN BY REFERENCE. SINCE THE FOLLOWING SUMMARY IS NOT A
COMPLETE DESCRIPTION OF THE PROVISIONS OF SUBCHAPTER XIII, ANY SHAREHOLDER
WHO MAY BE CONSIDERING EXERCISING HIS OR HER RIGHTS AS A DISSENTER IS URGED
TO REFER TO THE FULL TEXT OF SUCH SUBCHAPTER IN APPENDIX B. THE PROVISIONS
OF SUBCHAPTER XIII REQUIRE STRICT COMPLIANCE. ANY SHAREHOLDER WHO WISHES TO
OBJECT TO THE MERGER AND DEMAND PAYMENT FOR HIS OR HER SHARES SHOULD CONSULT
HIS OR HER OWN ATTORNEY OR ADVISOR. IF A SHAREHOLDER FAILS TO PERFECT
DISSENTERS' RIGHTS BY NOT STRICTLY COMPLYING WITH THE APPLICABLE STATUTORY
REQUIREMENTS, SUCH SHAREHOLDER WILL BE BOUND BY THE TERMS OF THE MERGER
AGREEMENT.
Pursuant to Section 180.1302 of the WBCL, any registered holder of the
Interstate Common Stock, or any beneficial owner of shares of such stock held
by a nominee as the shareholder of record, has the right to object to the
Merger and demand payment of the "fair value" of his or her shares in cash.
For purposes of Subchapter XIII, the "fair value" of Interstate's shares is
determined immediately before the consummation of the Merger, excluding any
appreciation or depreciation in anticipation of the Merger unless such
exclusion would be inequitable.
Any Interstate registered or beneficial shareholder electing to dissent
to the Merger must file with Interstate, before the Merger vote is taken, a
written notice of intent to demand payment that complies with Section
180.0141 of the WBCL. A vote against approval of the Merger Agreement, in
person or by proxy, will not in and of itself constitute a notice of
objection satisfying Section 180.0141. Furthermore, such Interstate
shareholder or beneficial shareholder may not vote his or her shares in favor
of the Merger Agreement. Because an executed proxy on which no voting
direction is made will be voted FOR approval of the Merger Agreement, a
dissenting shareholder who wishes to have his or her shares represented by a
proxy at the Special Meeting but preserve his or her dissenters' rights must
mark such proxy either to
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vote against the Merger Agreement or to abstain from voting thereon, in
addition to complying with the other requirements as described herein.
Any Interstate shareholder may assert dissenters' rights as to fewer
than all shares registered in his or her name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies Interstate in writing of the name and address of each person on
whose behalf he or she asserts dissenters' rights. In order to assert
dissenters' rights, a beneficial shareholder must submit to Interstate the
shareholder's written consent to the dissent not later than the time that the
beneficial shareholder asserts dissenters' rights, which consent should be
with respect to all shares of which he or she is the beneficial shareholder.
If the Merger Agreement is approved by the requisite vote at the Special
Meeting, Interstate will send within 10 days after such approval to any
dissenting shareholder who has preserved his or her dissenters' rights by
filing such intent to demand payment and refraining from voting his or her
shares in favor of the Merger Agreement, a dissenters' notice including or
having attached a form for demanding payment that requires the registered or
beneficial shareholder asserting dissenters' rights to certify whether he or
she acquired beneficial ownership of the shares before the first announcement
to the news media or to shareholders of the terms of the Merger, a statement
indicating where the shareholder or beneficial shareholder must send the
payment demand and where and when certificates for the shares of Interstate
Common Stock must be deposited, a date by which Interstate must receive the
payment demand and a copy of Subchapter XIII. Persons receiving a
dissenters' notice must demand payment in writing within the requisite time
and certify whether they acquired beneficial ownership of the shares before
the date specified in the dissenters' notice. The dissenter's certificates
for shares of such stock must also be deposited in accordance with the terms
of the notice.
As soon as the Merger is consummated or upon receipt of a payment
demand, whichever is later, Interstate will pay each shareholder who has
perfected his or her dissenters' rights the amount that Interstate estimates
to be the fair value of his or her shares plus accrued interest. The payment
shall be accompanied by Interstate's latest available audited financial
statements, a statement of Interstate's estimate of the fair value of the
shares, an explanation of the calculation of interest, a statement of the
dissenter's right to demand payment if the dissenter is dissatisfied with
Interstate's payment and a copy of Subchapter XIII.
Interstate may elect to withhold payment from a dissenter who was not
the beneficial owner of shares before the date specified in the dissenters'
notice. To the extent Interstate elects to withhold such payment after
consummating the Merger, Interstate shall estimate the fair value of the
shares plus accrued interest and shall pay that amount to each dissenter who
agrees to accept it in full satisfaction of his or her demand. Interstate
shall send with its offer of payment a statement of its estimate of the fair
value of the shares, an explanation of how interest was calculated and a
statement of the dissenter's right to demand payment if he or she is
dissatisfied with the offer.
A dissenter, within 30 days after Interstate has made or offered payment
for his or her shares, shall notify Interstate in writing in accordance with
Section 180.0141 of the WBCL if he or she is dissatisfied with the payment or
offer. The notice shall state the dissenter's estimate of the fair value of
his or her shares and the amount of interest due and demand payment of that
estimate less the payment already received from Interstate, or for dissenters
whose payments have been withheld, reject the offer of payment and demand
payment of the fair value of his or her shares and interest due if certain
conditions are satisfied.
If a dissenter's demand for payment remains unsettled, Interstate may
bring a special proceeding within 60 days after receiving the payment demand
and petition a court to determine the fair value of Interstate shares and
accrued interest. If this special proceeding is not brought within the
60-day period, Interstate must pay each dissenter whose demand remains
unsettled the amount demanded.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion, which is included solely for the general
information of Interstate shareholders, summarizes certain federal income tax
consequences to holders of Interstate Common Stock that receive cash and
rights to Contingent Payments in exchange for shares of Interstate Common
Stock pursuant to the terms of the Merger Agreement (or that receive cash
pursuant to the exercise of dissenters' rights). This summary is based upon
the statutes, regulations, rulings and decisions in effect on the date
hereof, all of which are subject to change, possibly with retroactive effect.
This summary does not discuss all aspects of federal income taxation that
may be relevant to a particular shareholder in light of the shareholder's
personal investment circumstances, or to certain types of shareholders
subject to special treatment under the federal income tax laws (for example,
financial institutions, life insurance companies, tax-exempt organizations
and foreign persons), and it does not discuss any aspects of state, local or
foreign tax laws. This summary does not discuss the tax consequences that
may be applicable to shareholders who acquired their shares of Interstate
Common Stock through the exercise of stock options or otherwise as
compensation or to Interstate shareholders that own or will own shares of
Citation. This summary assumes that shareholders hold their shares of
Interstate Common Stock as a "capital asset" (generally property held for
investment) under the Internal Revenue Code of 1986, as amended (the "Code"),
and that the Company Stock Price will be paid in 1996. No legal opinion of
counsel has been or will be given and no rulings have been or will be
requested from the Internal Revenue Service (the "IRS") as to the federal
income tax consequences of the Merger. BECAUSE THE TAX CONSEQUENCES FOR ANY
PARTICULAR SHAREHOLDER MAY BE AFFECTED BY MATTERS NOT TAKEN INTO ACCOUNT IN
THIS SUMMARY OR A DECISION TO ELECT OUT OF INSTALLMENT REPORTING AS DISCUSSED
BELOW, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER
TAX LAWS.
The receipt of cash and the right to Contingent Payments in exchange for
shares of Interstate Common Stock pursuant to the terms of the Merger
Agreement (or the receipt of cash pursuant to the exercise of dissenters'
rights) will be a taxable transaction for federal income tax purposes, and
may also be a taxable transaction under applicable state, local, foreign and
other tax laws.
SHAREHOLDERS THAT DO NOT ELECT OUT OF INSTALLMENT REPORTING. If a
taxpayer does not elect out of installment reporting, Treasury Regulations
governing contingent debt instruments will require the shareholder to
allocate in equal annual increments the basis of his or her shares of
Interstate Common Stock to the taxable years in which payments (including the
Company Stock Price and Contingent Payments) may be received. Because the
Company Stock Price will be received in 1996 and Contingent Payments, if any,
may be received in each of the years 1997, 1998 and 1999, twenty-five percent
(25%) of the shareholder's basis would be allocated to each of the years 1996
through 1999. Gain will be recognized to the extent that the Company Stock
Price or principal component of a Contingent Payment (computed as described
below) received in a taxable year exceeds the basis allocated to that year.
If in 1997 or 1998 no Contingent Payment is received or if the principal
component of such payment is less than the basis allocated to that year, the
unrecovered portion of basis allocated to that year will be carried forward
to the next year. No loss will be allowed until 1999, the final taxable year
in which a Contingent Payment may be received (or, if earlier, the taxable
year in which it is determined that the right to Contingent Payments is
worthless). As a result of the basis allocation rules, unless an Interstate
shareholder elects out of installment reporting, the shareholder will
generally be able to offset only twenty-five percent (25%) of the
shareholder's basis in shares of Interstate Common Stock against the payment
of the Company Stock Price received in 1996, even though that payment could
well be the majority of total payments to be received by the shareholder
pursuant to the Merger. Therefore, a shareholder may wish to consider
electing out of installment reporting with respect to the Merger.
Pursuant to temporary Treasury Regulation Section 15A.453-1(c)(7), a
taxpayer may request a private letter ruling from the IRS to use an
alternative method of basis recovery if the taxpayer is able to demonstrate,
prior to the due date of the return (including extensions) for the taxable
year in which the first
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payment is received (1996), that application of the normal basis recovery
rule described above will substantially and inappropriately defer recovery of
basis. To meet this test the taxpayer must show (i) that the alternative
method is a reasonable method of ratably recovering basis, and (ii) that,
under such method, it is reasonable to conclude over time the taxpayer likely
will recover basis twice as fast as the taxpayer would under the otherwise
applicable normal basis recovery rule. The request must be filed before the
due date for filing the return. The taxpayer must receive the ruling prior
to using the alternative method of basis recovery.
A shareholder that does not elect out of installment reporting may be
required to pay interest on the deferred tax. Section 453A of the Code
generally requires that interest be paid on the deferred tax with respect to
an obligation arising from the installment sale of property if (i) the sales
price is over $150,000 and (ii) the face amount of all such obligations that
arose during the taxable year and that are outstanding as of the close of the
taxable year exceeds $5 million. If interest must be paid with respect to an
obligation that arises during a year, interest must also be paid for any
subsequent year if any part of that obligation remains outstanding at the end
of that subsequent year. It is not clear how the interest charge will be
computed when the installment obligation involves rights such as rights to
the Contingent Payments.
SHAREHOLDERS THAT ELECT OUT OF INSTALLMENT REPORTING. If an Interstate
shareholder elects out of installment reporting of the receipt of the Company
Stock Price and Contingent Payments, it is likely that at the Effective Time
the shareholder will recognize capital gain or loss for federal income tax
purposes equal to the difference between (i) the tax basis of the shares of
Interstate Common Stock converted in the Merger and (ii) the sum of the
Company Stock Price plus the fair market value at the Effective Time of the
right to Contingent Payments for such shares. To elect out of installment
reporting, a shareholder should report the full amount of the gain or loss on
a timely filed federal tax return (including extensions). Generally, once a
taxpayer reports a gain under the installment method, the taxpayer cannot
later elect out of installment reporting. However, if the original federal
tax return of the taxpayer was filed on time, the taxpayer may make the
election on an amended return filed no more than six months after the due
date of the return, excluding extensions.
If an Interstate shareholder elects out of installment reporting, the
shareholder will recognize additional gain if the total of the principal
components of the Contingent Payments (computed as described below) exceeds
the fair market value of the right to Contingent Payments at the Effective
Time. Such a shareholder will recognize a capital loss in 1999 (the last year
in which a Contingent Payment could be received) if the total of the
principal components of such actual Contingent Payments is less than such
fair market value.
On occasion, taxpayers have argued that if installment reporting does
not apply to the sale or exchange of an asset (e.g., because the taxpayer
elects out of installment reporting), the taxpayer should be permitted to
postpone taxation of the contingent portion of the sale price until the
contingent portion is actually paid. Under this method, the so-called "open
transaction method," taxpayers have argued that they are entitled to recover
tax basis before reporting any gain. However, temporary Treasury Regulation
Section 15A.453-1(d) severely limits the availability of the open transaction
method. The Regulation provides that if a taxpayer elects not to report on
the installment method, then "[r]eceipt of an installment obligation shall be
treated as the receipt of property, in an amount equal to the fair market
value of the installment obligation, whether or not such obligation is the
equivalent of cash. An installment obligation is considered to be property
and is subject to valuation . . . without regard to whether the obligation is
embodied in a note, an executory contract, or other instrument . . . ." The
Regulation also states that if a taxpayer elects out the installment method
"[t]he fair market value of a contingent payment obligation may be
ascertained from, and in no event shall be considered to be less than, the
fair market value of the property sold (less the amount of any other
consideration received in the sale). Only in those rare and extraordinary
cases involving sales for a contingent payment obligation in which the fair
market value of the obligation (determinable under the preceding sentences)
cannot reasonably be ascertained will the
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taxpayer be entitled to assert that the transaction is 'open.'" Thus, it is
likely that the IRS would challenge any attempt to use the open transaction
method, and no assurance can be given that the IRS would not be successful in
such a challenge.
DISSENTING SHAREHOLDERS. A shareholder that exercises dissenters'
rights will recognize gain or loss equal to the difference between the basis
of the shares of Interstate Common Stock held by the shareholder and the
amount of cash received pursuant to the exercise of such rights.
CAPITAL LOSS LIMITATION. If an individual recognizes a capital loss in
a taxable year, such a loss is deductible only to the extent of capital gains
recognized in that taxable year plus $3,000 ($1,500 for a married individual
filing a separate return). Any excess capital loss may be carried forward
indefinitely until exhausted under the rules of the preceding sentence, but
may not be carried back. Thus, as an example of the effect of the basis
allocation rules discussed above, an Interstate shareholder that does not
elect out of installment reporting could have a capital gain in 1996 and a
capital loss in 1999, which loss could not be used to offset the capital
gain. A corporation may deduct a capital loss only to the extent of capital
gains. A corporation may generally carry a capital loss back three years and
forward five years.
COMPUTATION OF PRINCIPAL AND INTEREST COMPONENTS OF CONTINGENT PAYMENTS.
A certain portion of any cash received by a former Interstate shareholder in
connection with a subsequent cash payment made by Citation as a Contingent
Payment will constitute interest income to the shareholder. The amount of
any Contingent Payment that will be characterized as interest income is a
function of the amount of cash actually received by the former Interstate
shareholder and the applicable federal interest rate. The Merger Agreement
provides that the applicable federal interest rate shall be the applicable
federal mid-term rate, compounded semi-annually. In effect, any cash
received as a Contingent Payment will be discounted by the applicable rate to
determine both a principal component and an interest component. The interest
component will be taxed as interest income, while the principal component
will be taxed in accordance with the provisions of the Code described above.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement provides that, between May 16, 1996 (the date of
the Merger Agreement) and the Closing, except with Citation's consent,
Interstate will use reasonable efforts to: (a) maintain all of the material
assets presently being used in the operation of its business in good
operating condition and repair subject to ordinary wear and tear; (b)
maintain insurance upon the assets of its business in amounts comparable to
that in effect on the date of the Merger Agreement; (c) preserve its present
business organization intact, and refrain from firing or terminating any of
its present officers or key employees, except upon prior notice to Citation;
(d) maintain its books, accounts and records in the usual, regular and
ordinary manner, on a basis consistent with prior years, endeavor to comply,
in all material respects, with all laws applicable to it and to the conduct
of its business, and perform all of its material obligations without default;
(e) not sell or voluntarily dispose of any of the assets of its business,
except in the ordinary course of business; (f) not incur any accounts
payable with respect to the operation of its business except in the ordinary
course of business; (g) not grant any increase in pay to employees nor
increase any salary, commission, bonus or management fee to any employee, nor
pay any bonus or institute any bonus or pension or profit-sharing plan or
program, other than in the ordinary course of business; (h) not enter into
any contract or commitment or engage in any transaction which is not in the
ordinary course of business, nor permit any material change in the character
of its business; (i) prevent the occurrence of any event which would result
in any of its representations and warranties contained in the Merger
Agreement not being true and correct; (j) keep its business intact and
preserve its relationship with suppliers, customers and others with whom
Interstate has business relations; (k) not amend or propose to amend its
articles of incorporation or bylaws except as required by law; (l) not issue
any additional stock options, stock appreciation rights or similar rights;
(m) not remove any inventory or equipment from its business premises, except
for the sale of inventory and equipment in the ordinary course of business;
and (n) not pay or declare any distributions to shareholders. Interstate
has also agreed
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not to make or institute any material change in its method of purchase, sale,
lease, management, marketing, accounting or operations without the prior
consent of Citation.
Citation and Sub and, subject to the approval of the Merger by
Interstate's shareholders, Interstate each agreed to take such action as is
required to consummate the Merger and the other transactions contemplated
thereby as of the earliest practicable date and to refrain from taking any
action that would impair the prospect of completing the Merger, except that
Interstate may agree to a competing offer or transaction. See --COMPETING
TRANSACTIONS. Citation is not prevented under the Merger Agreement from
proceeding with other mergers or acquisitions, regardless of whether or not
Citation Common Stock or other securities are used as the consideration.
COMPETING TRANSACTIONS
Interstate has agreed in the Merger Agreement that neither it nor its
officers, directors, employees, agents or other representatives will solicit,
initiate, facilitate, encourage, negotiate with respect to, discuss or agree
to any Competing Transaction (as defined below) or Competing Offer (as
defined below), except (i) to the extent required by the fiduciary duties of
the Interstate Board and its officers under applicable law if so advised by
advice of counsel, and (ii) Competing Offers by officers, directors,
employees and shareholders of Interstate. Interstate is obligated to notify
Citation within 48 hours following receipt of any Competing Offer and must
give Citation 48 hours prior notice and an opportunity to negotiate with
Interstate before entering into, executing or agreeing to, any Competing
Offer or Competing Transaction. Interstate may, by notice to Citation at any
time prior to the Effective Time, terminate the Merger Agreement if it enters
into, executes or agrees to, a Competing Offer or Competing Transaction
following a determination by the Interstate Board on advice of counsel that
such action is required by its fiduciary duties under applicable laws.
For purposes of the Merger Agreement, Competing Transaction is defined
to mean any of the following transactions occurring prior to the Effective
Time, other than the Merger: (a) a merger, consolidation, exchange of
securities, reorganization, business combination or similar transaction
involving Interstate; (b) a disposition of all or substantially all of the
assets of Interstate in a single or series of related transactions; (c) a
sale of, or a tender offer or exchange offer for, or acquisition by any
person or group of beneficial ownership of, 10% or more of the outstanding
capital stock of Interstate in a single or series of related transactions; or
(d) a public announcement of a proposal, plan, intention or agreement to do
any of the foregoing. Under the Merger Agreement, a Competing Offer means
any inquiry, proposal or offer relating to a Competing Transaction.
INDEMNIFICATION
Interstate has agreed to indemnify Citation and the Surviving
Corporation and their respective officers, directors, and/or agents
(collectively, the "Citation Indemnified Parties") and hold them harmless
from any liability, loss, cost, expense, damage, claim or deficiency
(including reasonable legal expenses), which the Citation Indemnified Parties
may suffer, sustain or become subject to, (i) as a result of any
misrepresentation by Interstate in the Merger Agreement, breach of any of the
warranties of Interstate contained in the Merger Agreement, or any breach or
failure to perform by Interstate of any of its covenants, duties or
obligations set forth in the Merger Agreement, (ii) related to delinquent or
underpaid taxes, including any interest and penalties thereon, with respect
to fiscal year 1995 and prior years and not included as a liability on the
December 31, 1995 Balance Sheet of Interstate, (iii) related to or arising
out of any administrative, civil or criminal action or proceedings relating
to any securities law matters, including but not limited to any inquiry or
investigation, whether formal or informal, with respect to any conduct by
Interstate relating thereto, or (iv) related to or arising out of a claim of
stock ownership (and/or options or other rights to purchase the capital stock
of Interstate) in Interstate to the extent such claimant is not recognized by
Interstate as of the Effective Time as being entitled to a portion of the
Merger Consideration (collectively, the "Citation Losses").
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The indemnification provided by Interstate in the Merger Agreement will
be satisfied solely from a set-off by Citation against the final installment
of the Contingent Payments, if any. See DESCRIPTION OF CONTINGENT PAYMENTS.
Citation will be entitled to such set-off (i) only if Citation promptly
notifies in writing the Stockholders Agents (as defined herein), specifying
the nature and amount of the Citation Losses related to such claim or claims,
(ii) only for a particular matter if it exceeds $10,000 and the amount of any
reserves on Interstate's books at December 31, 1995, and (iii) only if the
aggregate amount of all such Citation Losses exceeds $750,000 (the "Basket
Amount"), in which case Interstate shall be obligated to indemnify the
Citation Indemnified Parties only for the excess of the aggregate amount of
all such Citation Losses over the Basket Amount, except that indemnification
for (i) securities law matters, (ii) stock ownership matters, and (iii)
Interstate Transaction Costs in excess of those disclosed at Closing shall be
made without reference to the Basket Amount. The maximum amount that can be
recovered by Citation through the exercise of the right of set-off against
the final installment of the Contingent Payments, if any, is $10,000,000.
Citation has agreed to indemnify the Closing Stockholders and their
agents, and the directors, officers and agents of Interstate (collectively,
the "Interstate Indemnified Parties") and hold them harmless from any
liability, loss, cost, expense, damage, claim or deficiency (including
reasonable legal expenses), which the Interstate Indemnified Parties may
suffer, sustain or become subject to, (i) as a result of any
misrepresentation by Citation or Sub in the Merger Agreement, breach of any
of the warranties of Citation or Sub contained in the Merger Agreement, or
any breach or failure to perform by Citation or Sub of any of their
covenants, duties or obligations set forth in the Merger Agreement, or (ii)
arising in connection with, or resulting from, the operation of Interstate on
or after the Closing Date (collectively, the "Interstate Losses"). The
Interstate Indemnified Parties will be entitled to indemnification for any
claim resulting in Interstate Losses only if they promptly notify Citation in
writing of the nature and amount of the Interstate Losses related to such
claim. All Interstate Losses are subject to indemnification by Citation
regardless of the dollar amount.
Prior to asserting any claim for indemnification for Citation Losses or
Interstate Losses, the indemnitee must exhaust all remedies with respect to
such losses against all other sources, including applicable insurance
policies. The rights of the Citation Indemnified Parties and the Interstate
Indemnified Parties set forth in the Merger Agreement are exclusive of all
other rights of indemnity or contribution, whether created by law or
otherwise, either before or after the Effective Time, relating in any way to
the terms of the Merger Agreement.
For a period of at least eight years after the Effective Time, Citation
will, and will cause Interstate to, maintain in effect: (a) charter
provisions or other agreements indemnifying present or former directors and
officers of Interstate, and former, present or future fiduciaries of any
employee benefit plan of Interstate, who serve or served as such at or prior
to the Effective Time; and (b) policies of insurance: (i) insuring such
officers and directors of Interstate against certain matters which arose at
or prior to the Effective Time; and (ii) insuring such plan fiduciaries
against certain matters which arose at or prior to, or which arise after, the
Effective Time. All such indemnification and insurance shall cover the same
matters and be on terms no less favorable than such charter documents,
agreements and insurance policies of Interstate as are in effect at the
Effective Time.
FEES AND EXPENSES
Whether or not the Merger is consummated, each party will pay all fees
and expenses incurred by it in connection with the Merger Agreement. The
Interstate Transaction Costs will be deducted from the amount otherwise
payable by Citation at Closing. See --PRINCIPAL TERMS OF THE MERGER--MERGER
CONSIDERATION.
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ACCOUNTING TREATMENT
Citation intends to treat the Merger as a "purchase" under generally
accepted accounting principles. Under the purchase method of accounting, the
assets and liabilities of Interstate will be, as of the Effective Time,
recorded at their respective fair values. The expected excess of the
consideration paid by Citation over the fair value of Interstate's assets and
liabilities will be recorded as property, plant and equipment.
All unaudited pro forma financial information contained or incorporated
by reference in this Proxy Statement-Prospectus has been prepared using the
purchase method to account for the Merger. See PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS and INCORPORATION OF DOCUMENTS BY REFERENCE.
REGULATORY MATTERS
The HSR Act and the rules and regulations thereunder provide that
certain acquisition transactions (including the Merger) may not be
consummated unless certain information has been furnished to the Antitrust
Division of the Department of Justice ("Justice") and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. The required information was furnished to Justice and the FTC by
Citation on ___________, 1996 and by Interstate on ____________________,
1996. The waiting period under the HSR Act will expire or terminate on or
before _________, 1996 unless a request for additional information is made by
either Justice or the FTC. The expiration or termination of the HSR Act
waiting period, if such expiration or termination were to occur, does not
preclude Justice, the FTC or others from challenging the Merger on antitrust
grounds. Neither Citation nor Interstate believes that the Merger would
violate the federal antitrust laws. See --CONDITIONS TO CLOSING. Other than
certain filings with regulatory agencies under certain federal securities
laws and certain state securities or "blue sky" laws, there are no other
federal or state regulatory requirements or authorities that must be complied
with or whose approval must be obtained, respectively, in connection with the
Merger.
MANAGEMENT AND OPERATIONS OF INTERSTATE AFTER CLOSING
POST-CLOSING MANAGEMENT. Interstate will be the Surviving Corporation
in the Merger and, after the Effective Time, will continue to own and operate
the business conducted by Interstate before the Effective Time. Citation
intends that the operations of the Surviving Corporation after the Effective
Time will be conducted substantially in the same manner as those of
Interstate before the Effective Time, with present Interstate management
personnel retained except that Franklyn Esenberg, Chairman of the Board of
Interstate, will resign from that position effective as of the Effective Time
and will be appointed Vice-Chairman of the Board of Interstate.
It is anticipated that after the Effective Time the Board of Directors
of the Surviving Corporation will consist of T. Morris Hackney, R. Conner
Warren, Stanley B. Atkins, Franklyn Esenberg, and James Mitchell. The officers
of the Surviving Corporation after the Effective Time are expected to consist
of the current officers of Interstate, James Mitchell, President and Chief
Executive Officer, David P. Lauer, Chief Financial Officer and Treasurer,
Everett Johnson, Vice President and General Manager-Southwest Division,
David A. Boettcher, Vice President-Sales, and Louis Zietz, Vice President and
Technical Manager-Southwest Division, plus T. Morris Hackney, who will become
Chairman of the Board, R. Conner Warren and Thomas W. Burleson, who will each
become Vice President and Assistant Secretary, and Stanley B. Atkins, who will
become Vice President and Secretary.
EMPLOYEES. Other than Messrs. Esenberg and Mitchell (see --INTERESTS OF
CERTAIN PERSONS IN THE MERGER), employees of Interstate as of the Effective
Time will be employed by the Surviving Corporation after the Effective Time
on an "at-will" basis and for the same salaries or wages in effect as of the
Effective Time. Collective bargaining agreements between Interstate and its
employees in effect immediately prior to the Effective Time will continue in
effect after the Effective Time.
EMPLOYEE BENEFIT PLANS. After the Effective Time, Interstate's existing
group benefit plans will continue in effect unchanged, except where cost
factors or unusual circumstances dictate otherwise. In
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addition, Interstate will adopt Citation's employee stock purchase plan. The
Interstate Retirement Plan will also continue in effect after the Effective
Time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Interstate Board with respect
to the Merger, shareholders should be aware that certain members of
Interstate's management and the Interstate Board have certain interests in
the Merger that are in addition to the interests of shareholders of
Interstate generally. The Interstate Board was aware of these interests and
considered them, among other matters, in adopting and approving the Merger
Agreement.
JAMES MITCHELL EMPLOYMENT AGREEMENT. Citation and Interstate have
entered into an employment agreement with James Mitchell dated May 16, 1996
(the "Mitchell Employment Agreement"), which will become effective as of the
Effective Time, pursuant to which Mr. Mitchell will serve as President and
Chief Executive Officer of Interstate for a term beginning at the Effective
Time and continuing for a period of three years thereafter, which term is
subject to extension unless terminated by Mr. Mitchell or Interstate.
Pursuant to the terms of the Mitchell Employment Agreement, Mr. Mitchell
shall receive an annual base salary of $225,000, incentive compensation from
incentive compensation programs of Interstate in place from time to time and
fringe benefits customarily provided to executives of Interstate. The
Mitchell Employment Agreement may be terminated by Interstate prior to the
expiration of the three year term or any extension in the event of Mr.
Mitchell's death, retirement or total disability; upon the bankruptcy,
receivership, dissolution or cessation of business of Citation; or after
written notice and an opportunity for Mr. Mitchell to respond, in the event
that Mr. Mitchell commits an act of personal dishonesty or willful
misconduct, breaches a fiduciary duty involving personal profit or
intentionally fails to perform stated duties, related to his position with
Interstate. Should Interstate terminate Mr. Mitchell prior to the expiration
of his employment term for reasons other than those set forth above, Mr.
Mitchell would be entitled to all compensation and the value of all benefits
provided for under the Mitchell Employment Agreement for the unexpired
portion of the Mitchell Employment Agreement. Mr. Mitchell has also agreed
not to compete with Interstate, except that he may acquire an equity interest
of 5% or less of the total equity interests in any company, partnership,
joint venture or similar entity which may compete with Interstate.
FRANKLYN ESENBERG EMPLOYMENT AGREEMENT AND RELATED CITATION GUARANTY.
Interstate and Franklyn Esenberg have entered into an employment agreement
dated May 16, 1996 (the "Esenberg Employment Agreement"), pursuant to which
Mr. Esenberg will serve as Vice Chairman of the Board of Interstate for a
term beginning on the date of the Effective Time and continuing until
December 31, 2001. Pursuant to the terms of the Esenberg Employment
Agreement, Mr. Esenberg will receive an annual salary of $67,000 plus
customary fringe benefits. During the term of the Esenberg Employment
Agreement, Mr. Esenberg has agreed not to compete with Interstate, except
that he may invest in publicly traded companies which may compete with
Interstate. In the event of Mr. Esenberg's death, Interstate shall continue
to pay Mr. Esenberg's salary through the term of the Esenberg Employment
Agreement.
Pursuant to the terms of the Merger Agreement, Citation will guarantee
at Closing the performance of and payment by Interstate under the Esenberg
Employment Agreement. In addition, under the terms of the guaranty, Mr.
Esenberg will be appointed to the Citation Board of Directors at the
Effective Time and will be nominated by Citation management for election as a
director at each annual meeting thereafter until at least the 1999 annual
meeting of Citation.
SETTLEMENT OF STOCK APPRECIATION RIGHTS. On January 1, 1994, Interstate
granted SARs for 29,600 underlying shares of Interstate Common Stock at a
$14.00 per share grant price to seventeen non-executive officer key
employees. On January 1, 1996, Interstate granted additional SARs for 3,000
underlying shares of Interstate Common Stock at $28.60 per share to three
additional non-executive officer key employees. Pursuant to the terms of the
Merger Agreement, all outstanding Interstate SARs for a total of 32,600
underlying shares of Interstate Common Stock will be settled in cash by
Interstate at the Effective Time based on a $34.00 per share value for
Interstate Common Stock. The aggregate payment by Interstate in full
settlement of the
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SARs will be $608,200. This SAR payment will be excluded from the calculation
of average annual net earnings of Interstate before interest and income and
franchise taxes for purposes of determining the amount of Contingent
Payments, if any, due to the Closing Stockholders. See DESCRIPTION OF
CONTINGENT PAYMENTS.
RESTRICTED STOCK ARRANGEMENT FOR MANAGEMENT OF INTERSTATE. Pursuant to
the terms of the Merger Agreement, Citation has agreed to make awards of an
aggregate of 43,500 shares of restricted Citation Common Stock (the
"Restricted Stock") to Messrs. Mitchell, Lauer, Johnson, Boettcher and Zietz
and 20 other Interstate key employees whose SARs will be settled at the
Effective Time. See --SETTLEMENT OF STOCK APPRECIATION RIGHTS. The 43,500
shares of Citation Common Stock to be used for the Restricted Stock awards
were acquired for that purpose by Interstate in anticipation of the execution
of the Merger Agreement. The Citation Common Stock was acquired by Interstate
in open market purchases for an aggregate amount of approximately $500,000.
No new Citation Common Stock will be issued in connection with the Restricted
Stock awards. See--CITATION COMMON STOCK OWNERSHIP. The awards shall be made
as of the Effective Time and shall be subject to restrictions whereby the
awardee shall forfeit the Restricted Stock if he or she does not remain an
employee of Interstate (or Citation or one of Citation's other subsidiaries)
until December 31, 1998 (the "Restricted Period"). The Restricted Stock will
vest in whole upon the recipient's death, permanent total disability or
involuntary discharge (except for cause) during the Restricted Period. If
any of such Restricted Stock is forfeited, it shall be returned to Citation
and immediately awarded pro rata to the remaining employees in the group of
executive officers or former SAR recipients, as the case may be, from which
the forfeited stock originated. The restrictions on any such forfeited stock
newly-awarded to an employee shall expire at the same time the Restricted
Period of the Restricted Stock awarded at the Effective Time to such
employee expires. During the Restricted Period, recipients of Restricted
Stock shall have the right to vote their Restricted Stock, but all cash
dividends, stock dividends, stock rights or other securities issued with
respect to the Restricted Stock shall be forfeitable and subject to the same
restrictions as exist regarding the original shares of Restricted Stock. The
Restricted Stock is nontransferable during the Restricted Period, except by
will or the laws of descent and distribution.
CITATION COMMON STOCK OWNERSHIP. At the Record Date, the directors and
executive officers of Interstate beneficially owned approximately
29,000 shares of Citation Common Stock. At that date Interstate also held
43,500 shares of Citation Common Stock to be used for the Restricted Stock
awards. See --RESTRICTED STOCK ARRANGEMENT FOR MANAGEMENT OF INTERSTATE.
Such shares of Citation Common Stock held by Interstate and its directors and
executive officers constitute less than 1% of the outstanding Citation Common
Stock.
STOCKHOLDERS AGENTS
Upon the approval of the Merger Agreement by the Interstate
shareholders, each Closing Stockholder shall be deemed to have irrevocably
constituted and appointed Franklyn Esenberg, James Mitchell and David P.
Lauer, and each of them (the "Stockholders Agents"), as their agents and
attorneys in fact with full power of substitution to act from and after the
Effective Time to do any and all things and execute any and all documents
which may be necessary, convenient or appropriate to facilitate the
consummation of the transactions contemplated by the Merger Agreement,
including but not limited to: (i) execution of documents and certificates
pursuant to the Merger Agreement; (ii) receipt of payments under or pursuant
to the Merger Agreement and disbursement thereof to the Closing Stockholders
and others, as contemplated by the Merger Agreement; (iii) receipt and
forwarding of notices and communications pursuant to the Merger Agreement;
and (iv) administration and enforcement of the provisions of the Merger
Agreement relating to the calculation and payment of the Contingent Payments.
See Section 2.1 of the Merger Agreement, attached hereto as Appendix A.
EXCHANGE OF STOCK CERTIFICATES AND OPTION AGREEMENTS
As soon as is practicable after the Effective Time (but not later than
15 days following such date), instructions for surrendering outstanding
certificates that immediately before the Effective Time represented shares of
Interstate Common Stock or Option Agreements relating to Option Stock will be
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mailed to each Closing Stockholder of record. A summary of the exchange
procedures is provided immediately below.
PAYING AGENT. A bank or trust company that is eligible for appointment
as a trustee under the Trust Indenture Act of 1939, as amended (the
"Indenture Act") will act as paying agent (the "Paying Agent") for the
payment of the Closing Merger Payment on surrender of certificates
representing Interstate Common Stock and upon receipt of the applicable
Option Agreement for each holder of Option Stock. Firstar Trust Company,
Milwaukee, Wisconsin, will initially act as Paying Agent unless it is
ineligible to do so under the Indenture Act, in which case the Paying Agent
shall be mutually acceptable to Interstate, Citation and Sub.
SUB AND CITATION TO PROVIDE FUNDS. Before the Effective Time, Sub will
provide to the Paying Agent the Closing Merger Payment. Citation will
provide to the Paying Agent prior to the respective annual installment
payment dates for the Contingent Payments the funds necessary to pay the
Contingent Payments then due pursuant to the Merger Agreement.
EXCHANGE PROCEDURE FOR INTERSTATE COMMON STOCK. The Paying Agent will
mail to each holder of record of a certificate or certificates that
immediately before the Effective Time represented outstanding shares of
Interstate Common Stock (the "Certificates") (i) a letter of transmittal
specifying that delivery will be effected, and risk of loss and title to the
Certificates will pass, only on delivery of the Certificates to the Paying
Agent, and in such form and having such other provisions as Citation may
reasonably specify, and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the Company Stock Price plus the right to
receive a pro rata portion of the aggregate amount of Contingent Payments, if
any. On surrender of a Certificate for cancellation to the Paying Agent,
together with such letter of transmittal, duly executed, and such other
documents as may be reasonably required by the Paying Agent, the holder of
such Certificate will be entitled to receive in exchange, and the Paying
Agent will pay as soon as practicable to such holder, the amount of cash into
which the shares of Interstate Common Stock represented by the Certificate so
surrendered have been converted pursuant to the Merger Agreement, and the
Certificate so surrendered will forthwith be canceled. No interest will be
paid or will accrue on the cash payable on the surrender of any Certificate.
Any holder whose Certificates have been lost or destroyed may nevertheless
obtain the amount of cash into which the shares of Interstate Common Stock
represented by such Certificates have been converted pursuant to the
provisions of the Merger Agreement, provided such holder delivers to Citation
and the Paying Agent a statement certifying such loss or destruction and
providing for indemnity reasonably satisfactory to Citation and the Paying
Agent indemnifying Citation and the Paying Agent against any loss or expense
either of them may incur as a result of such lost or destroyed Certificates
being thereafter surrendered to the Paying Agent. In the event of a
transfer of ownership of Interstate Common Stock which is not registered in
the transfer records of Interstate, a check in payment of the proper amount
of cash may be issued to a transferee if the Certificate representing such
Interstate Common Stock is presented to the Paying Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by the Merger Agreement, each Certificate after the Effective
Time will represent only the right to receive on such surrender in exchange
for each share of Interstate Common Stock represented thereby the Company
Stock Price and its pro rata portion of the aggregate amount of Contingent
Payments, if any. Any funds deposited with the Paying Agent that remain
unclaimed by the former holders of Interstate Common Stock for four years
after the Effective Time will be paid to the Surviving Corporation on demand,
and any former holders of Interstate Common Stock who have not then complied
with the instructions for exchanging their Certificates may look only to the
Surviving Corporation for payment.
EXCHANGE PROCEDURE FOR HOLDERS OF OPTION STOCK. The procedure for
holders of Option Stock at the Effective Time to receive the Option Stock
Price from the Paying Agent shall be the same procedure as that specified
above for payment of the Company Stock Price for shares of Interstate Common
Stock (as reasonably modified pursuant to the discretion of the Paying Agent,
as necessary), except that the
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holders of Option Stock shall be required to deliver their Option Agreements
to the Paying Agent, rather than being required to deliver the Certificates
as in the case of holders of Interstate Common Stock.
PAYMENT OF CONTINGENT PAYMENTS. If any amount of Contingent Payments is
due to the Closing Stockholders pursuant to the provisions of the Merger
Agreement, Citation will make payment of such Contingent Payments to the
Paying Agent, and the Paying Agent shall deliver the payment due to all
Closing Stockholders (other than dissenting shareholders) who have delivered
their Certificates or Option Agreements, as applicable, to the Paying Agent,
in accordance with the terms of the Merger Agreement. See DESCRIPTION OF
CONTINGENT PAYMENTS.
NO FURTHER OWNERSHIP RIGHTS IN CLOSING STOCK. All cash paid on the
surrender of shares of Interstate Common Stock (or rights to shares for
Option Stock) plus the right to the payment of any Contingent Payments due in
accordance with the terms of the Merger Agreement will be deemed to have been
made and given in full satisfaction of all rights pertaining to such shares
of Interstate Common Stock and Option Stock, and there will be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Interstate Common Stock. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they will be canceled and exchanged as provided in the Merger
Agreement.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR INTERSTATE COMMON STOCK
AT THIS TIME.
DISPUTE RESOLUTION
The Merger Agreement establishes certain procedures to resolve any
dispute or disagreement (other than with respect to calculation of the
Contingent Payments (see DESCRIPTION OF CONTINGENT PAYMENTS--PROCEDURES TO
DETERMINE ANY CONTINGENT PAYMENTS DUE) between Interstate or the Stockholders
Agents and Citation relating to the Merger Agreement. If any such dispute is
not resolved within 30 days of one party giving the other notice of a
dispute, the Stockholders Agents and Citation must attempt in good faith to
resolve the dispute by non-binding mediation. If such mediation fails to
resolve the dispute and 100 days have passed since the first notice of the
dispute, any party may bring an action or proceeding in state or federal
court which has jurisdiction over the parties. The parties to the Merger
Agreement have agreed that any proceeding relating to the Merger Agreement
must be brought in a court of competent jurisdiction sitting in Milwaukee
County, Wisconsin.
DESCRIPTION OF INTERSTATE CAPITAL STOCK
GENERAL
At the Record Date, the authorized capital stock of Interstate consisted
of 6,000,000 shares of Common Stock, $1.00 par value per share, of which
1,313,524 shares were issued and outstanding. The following summary of
Interstate Common Stock does not purport to be complete and is qualified in
its entirety by reference to Interstate's Articles of Incorporation and
Bylaws, as well as applicable statutory or other law.
COMMON STOCK
Holders of Interstate Common Stock: (i) have equal and ratable rights
to dividends from funds legally available therefor, when, as and if declared
by the Interstate Board, subject to any contractual restrictions on the
payment of dividends, as discussed below; (ii) are entitled to share ratably
in any distribution to holders of Interstate Common Stock upon liquidation,
dissolution or winding-up of Interstate,
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after payment in full of all creditors; and (iii) do not have preemptive
rights. Interstate Common Stock is not redeemable or convertible, and each
holder is entitled to one vote per share on all matters presented to
shareholders.
The outstanding shares of Interstate Common Stock are fully paid and
non-assessable. However, shareholders are subject to personal liability
under Section 180.0622(2)(b) of the WBCL, as judicially interpreted, for
debts owing to employees of Interstate for services performed, but not
exceeding six months service in any one case.
Interstate's lending arrangements with its bank place certain
restrictions on Interstate's ability to pay dividends or make other
distributions to shareholders. See MARKET PRICES OF INTERSTATE COMMON STOCK
AND DIVIDENDS.
Except as may otherwise be required by law, under Interstate's Articles
of Incorporation the vote required to approve a plan of merger, sale of
substantially all assets not in the ordinary course of business or
dissolution is a majority of all the votes entitled to be cast by those
shareholders who have a right to vote.
The registrar and transfer agent for Interstate Common Stock is Firstar
Trust Company, Milwaukee, Wisconsin.
CERTAIN ANTI-TAKEOVER PROVISIONS
Sections 180.1140 to 180.1144 of the WBCL prohibit certain "business
combinations" between a "resident domestic corporation," such as Interstate,
and a person beneficially owning 10% or more of the voting power of the
outstanding voting stock of Interstate (an "interested stockholder") within
three years after the date such person became a 10% beneficial owner, unless
the business combination or the acquisition of such stock has been approved
before the stock acquisition date by the Interstate Board. After such
three-year period, a business combination with the interested stockholder may
be consummated only if the Interstate Board approved such stock acquisition
before the stock acquisition date or the holders of a majority of the voting
stock not beneficially owned by the interested stockholder approve the
business combination at a meeting called for that purpose, unless the
business combination satisfies certain adequacy-of-price standards intended
to provide a fair price for shares held by disinterested shareholders.
DESCRIPTION OF CONTINGENT PAYMENTS
THE CONTINGENT PAYMENTS, IF ANY, ARE PAYABLE PURSUANT TO THE PROVISIONS
OF THE MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS
PROXY STATEMENT-PROSPECTUS. THE FOLLOWING DESCRIPTION SUMMARIZES CERTAIN
GENERAL TERMS AND PROVISIONS OF THE CONTINGENT PAYMENTS AS PROVIDED FOR IN
THE MERGER AGREEMENT AND DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, PROVISIONS OF THE MERGER
AGREEMENT.
GENERAL
Pursuant to the terms of the Merger Agreement, Citation has agreed to
deliver to the Closing Stockholders aggregate Contingent Payments equal to
five (5) times the amount by which (x) the average annual net earnings of
Interstate before interest and income and franchise taxes ("Interstate EBIT")
during the three year period from January 1, 1996 through December 31, 1998
(the "Payout Period") exceeds (y) $9,500,000. For example, if the aggregate
Interstate EBIT during the Payout Period is $39,000,000, then the aggregate
amount of Contingent Payments payable to the Closing Stockholders would be
$17,500,000 ($39,000,000 DIVIDED BY 3 = $13,000,000 - $9,500,000 =
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$3,500,000 x 5 = $17,500,000), subject to the making of partial progress
payments as described below. Any Contingent Payments due are payable to the
Closing Stockholders on a pro rata basis, based on the combined aggregate
outstanding shares of Interstate Common Stock and Option Stock as of the
Effective Time. As partial progress payments, Citation has agreed to make
annual payments equal to 50% of the estimated final Contingent Payments due
based on the actual first and second year's Interstate EBIT, as discussed
below. Such partial progress payments shall be deemed fully earned by the
Closing Stockholders even though the subsequent year Interstate EBIT may be
less than $9,500,000. Any such Contingent Payments shall be paid in cash on
the dates indicated below, and shall be deemed to include interest compounded
semiannually at the applicable federal mid-term rate as determined in
accordance with provisions of Section 1274(d) of the Code.
DESCRIPTION OF INTERSTATE EBIT
The Merger Agreement further defines the term "Interstate EBIT" to mean
the consolidated net earnings (or losses), before all interest, income
(federal and state) and franchise taxes, of Interstate, computed on the
accrual basis of accounting in accordance with GAAP consistently applied and
consistent with the accounting principles applied by Interstate in its prior
fiscal years. The following provisions further govern the computation of
Interstate EBIT for purposes of the Merger Agreement:
(i) Any loss, charge or expense agreed to by Citation and the
Stockholders Agents to be (a) not related to the ordinary business
operations of Interstate, or (b) paid, incurred or charged in
connection with expansion of the business operations presently
conducted by Interstate as a result of the making of acquisitions or
the opening and staffing of new offices, or any income or revenues
directly derived therefrom, shall be excluded from such computation.
(ii) Any charge or expense for the amortization of goodwill arising out of
the Merger, or that the purchase price thereof is in excess of the
net worth thereof, shall be excluded from such computation.
(iii) Any payments, charges or expenses for allocation of home office,
executive, general and administrative expenses or other payments,
charges or expenses of Citation and the Sub and/or its affiliates
shall be excluded from such computation.
(iv) Such computation (including, without limitation, the determination of
the basis for depreciation and the reflection of intercompany
transactions) shall be made as though the Merger had not occurred and
Interstate were a single corporation with all of the Interstate
Common Stock owned by persons who are neither directly or indirectly
related to or affiliated with Citation or any of its affiliates.
(v) Interstate shall maintain plant and equipment consistent with past
practices, and if such maintenance is determined to be inconsistent,
an appropriate adjustment shall be made to Interstate EBIT. Inventory
practices including maintenance and spare parts inventories, and
capitalization policies for fixed assets shall be consistent with
prior practices. There will be deducted from Interstate EBIT any
material savings in expenses and/or reduction in costs of goods and
services purchased that would not have resulted if Interstate had not
been affiliated with Citation. Interest will be deducted from
Interstate EBIT that is related to equipment being purchased by
Interstate after March 1, 1996 that was leased prior to March 1,
1996.
(vi) Payments made in settlement for outstanding Interstate SARs as
provided by the Merger Agreement shall be excluded from the
computation of Interstate EBIT. See THE PROPOSED
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MERGER--INTERESTS OF CERTAIN PERSONS IN THE MERGER--SETTLEMENT OF
STOCK APPRECIATION RIGHTS.
(vii) No effect shall be given to: (a) any tax or financial statement
write-up of the assets of Interstate based on the consummation of
the transactions described in the Merger Agreement; (b)
Interstate's payment of the Interstate Transaction Costs; (c) any
recapture income or recapture taxes resulting from the
consummation of the Merger; (d) any additional depreciation or
amortization of intangibles associated with a write-up of assets
upon or following the consummation of the Merger; (e) the
payments of, or accrual for, the Contingent Payments; or (f) the
payments of, or accrual for, any prepayment penalties based on
the prepayment of any indebtedness of Interstate existing as of
the Effective Time.
(viii) To the extent that Interstate EBIT for calendar year 1996, 1997
or 1998 is reduced as a result of an event for which Interstate
has indemnified Citation and the Sub pursuant to the Merger
Agreement (and is recoverable because all indemnifiable breaches
exceed $750,000 or such breaches relate to Interstate securities
law or stock ownership matters), the amount of such reduction
shall be added back to Interstate EBIT.
(ix) The grant of Restricted Stock shall be excluded from the computation
of Interstate EBIT. See THE PROPOSED MERGER--INTERESTS OF CERTAIN
PERSONS IN THE MERGER--RESTRICTED STOCK ARRANGEMENT FOR MANAGEMENT OF
INTERSTATE.
PROTECTIVE PROVISIONS
The Merger Agreement sets forth certain provisions intended to ensure
that Interstate will continue to operate its business during the Payout
Period as it did prior to the Effective Time. In particular, Citation has
agreed, subject to certain exceptions specified in the Merger Agreement, to:
(a) not cause or permit Interstate to (i) sell all or substantially all of
its assets, (ii) merge or consolidate with any other person; (iii) liquidate
or dissolve; or (iv) purchase all or substantially all of the assets or
capital stock of any person; (b) cause all transactions between it and its
affiliates, on the one hand, and Interstate, on the other hand, to be
conducted on an arm's length basis on terms and conditions at least as
favorable to Interstate as Interstate could obtain from persons other than
Citation or its affiliates; (c) permit the Stockholders Agents and their
representatives to have reasonable access to all books and records of
Interstate; (d) cause Interstate to maintain accounting books and records
which are the basis for the calculation of Interstate EBIT and the Contingent
Payments for calendar years 1996, 1997 and 1998; (e) cause Interstate not to
enter into the ownership, active management or operation of any business
other than the business of Interstate on the date of the Merger Agreement;
(f) cause James Mitchell to be the principal executive officer of Interstate,
having the right to manage the business and affairs of Interstate and direct
the formulation and execution of both short- and long-term corporate plans;
(g) cause Interstate to make all capital expenditures described in
Interstate's 1996 business plan; and (h) not own (other than through
Interstate), directly or indirectly, any other forging operation without
first consulting with the Stockholders Agents.
PROCEDURES TO DETERMINE ANY CONTINGENT PAYMENTS DUE
The Merger Agreement establishes certain procedures that must be
complied with in determining whether any Contingent Payments are due and
payable during the Payout Period. Generally, by March 1, 1997, 1998 and
1999, Citation must deliver to the Stockholders Agent (i) audited financial
statements of Interstate for the preceding calendar year; (ii) a statement
setting forth Citation's calculation of Interstate EBIT for the preceding
calendar year or years; (iii) a statement setting forth Citation's
calculation of the amount of the Contingent Payments due for the preceding
calendar year or years and the amount payable for the preceding calendar
year; and (iv) a special report by the auditors regarding Citation's
calculation
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of Interstate EBIT and the Contingent Payments for the preceding calendar
year or years. With respect to the final calendar year in the Payout Period,
Citation must also deliver a statement setting forth the amount of any setoff
by Citation against the Contingent Payments and the basis therefor. See THE
PROPOSED MERGER--INDEMNIFICATION. The Merger Agreement also contains
provisions intended to resolve any disagreement with respect to the
calculation of Interstate EBIT or the Contingent Payments. If Citation and
the Stockholders Agents are unable to resolve any disagreement involving any
such calculation, the disagreement may be submitted to a firm of independent
certified public accountants of national standing with an office in Chicago,
Illinois which is not affiliated with Citation, as agreed to in writing by
Citation and the Stockholders Agents. The independent accountants will
render a decision on the disagreement in writing, such decision being final
and binding on the parties. The independent accountants will determine the
proportion of their fees and expenses to be paid by Citation and the
Stockholders Agents (out of the Contingent Payments), based on the degree to
which they have accepted the position of a party. Citation will be
responsible for certain fees and expenses of the Stockholders Agents and the
independent accountants and interest on the Contingent Payments in dispute
should the independent accountants determine that the amount of Contingent
Payment due is $25,000 or more than the amount of the Contingent Payments
originally calculated by Citation.
PAYMENT OF CONTINGENT PAYMENTS
All payments of the Contingent Payments, if any, shall be made by
Citation to the Closing Stockholders by delivery of such amounts to the
Paying Agent. The Paying Agent shall: (i) pay all expenses of the
Stockholders Agents incurred in connection with the administration and
enforcement of the Merger Agreement; and (ii) distribute the balance of the
Contingent Payments to the Closing Stockholders pro rata.
Any Contingent Payments shall be payable by Citation in annual
installments as follows: (i) on or before March 1, 1997, Citation will
deliver to the Paying Agent an amount equal to 50% of the amount by which the
1996 calendar year Interstate EBIT exceeds $9,500,000, multiplied by five;
(ii) on or before March 1, 1998, Citation will deliver to the Paying Agent an
amount equal to 50% of the amount by which the combined 1996 and 1997
calendar year Interstate EBIT exceeds $19,000,000, divided by two and
multiplied by five, less the amount of Contingent Payments previously made;
and (iii) on or before March 1, 1999, Citation will deliver to the Paying
Agent an amount equal to the amount by which the combined 1996, 1997 and 1998
calendar year Interstate EBIT exceeds $28,500,000, divided by three and
multiplied by five, less the amount of Contingent Payments previously made.
Examples of these calculations are set forth in Section 1.12(b) of the Merger
Agreement, attached hereto as Appendix A.
The Closing Stockholders will have no obligation to return any prior
payments of Contingent Payments made, even though the lack of Interstate EBIT
in a subsequent year or years results in an amount of Contingent Payments
being made in excess of that which would otherwise be due at the end of the
Payout Period.
COMPARISON OF CONTINGENT PAYMENTS TO INTERSTATE COMMON STOCK
Unlike the Interstate Common Stock, which Interstate shareholders will
surrender in connection with the Merger, the right to a pro rata portion of
the aggregate amount of any Contingent Payments will not constitute or
represent any equity or ownership interest in Interstate, nor in Citation or
Sub. As distinguished from Interstate Common Stock, each such right to any
Contingent Payments: (i) will not be represented by any form of certificate
or instrument; (ii) will not be transferable, whether by sale, assignment,
pledge or other transfer, except by operation of law or the laws of descent
and distribution; and (iii) will not entitle the holder thereof to any voting
or dividend rights or any other rights common to shareholders. The pro rata
right to a portion of the Contingent Payments is a cash only right. See
DESCRIPTION OF INTERSTATE CAPITAL STOCK.
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CERTAIN INFORMATION CONCERNING CITATION
BUSINESS OF CITATION
Citation is a major components supplier to the durable goods industry.
It manufactures, machines and assembles precision ductile, gray and
high-alloy iron, steel and aluminum castings. It serves the automotive/light
truck, heavy truck, electrical, railroad, pump, valve, fittings, waterworks,
agriculture, aircraft and other industrial markets. Citation maintains a
diverse base of approximately 1,900 customers with no one customer accounting
for more than 7.8% of sales in the twelve months ended October 1, 1995. In
fiscal 1994 and 1995 the Company produced and shipped 131,984 and 206,295
tons of castings, respectively.
Citation currently operates 18 manufacturing facilities in nine states
and employs more than 5,000 employees. Citation's manufacturing facilities
are divided into the following three operating groups based on customer base,
length of production runs and technological processes: High Volume, Medium
Volume, Special Products. In fiscal year 1995, Citation's total revenues
were $307.7 million.
ADDITIONAL INFORMATION
Information regarding the names, ages, positions and business
backgrounds of the executive officers and directors of Citation, as well as
additional information, including executive compensation, security ownership
of certain beneficial owners and management and certain relationships and
related transactions, is incorporated by reference to Items 10, 11, 12 and 13
of Citation's Annual Report on Form 10-K for the fiscal year ended October 1,
1995 (which incorporates portions of Citation's Proxy Statement for its 1996
Annual Meeting of Shareholders).
MARKET PRICES OF INTERSTATE COMMON STOCK AND DIVIDENDS
As of the Record Date, there were approximately 150 holders of record of
Interstate Common Stock. There is no established public trading market for
Interstate Common Stock. Trading in shares of Interstate Common Stock is
infrequent and Interstate has not necessarily tracked the sales prices of
such shares in those transactions. As a result, the market value for shares
of Interstate Common Stock is not readily ascertainable. However, since
January 3, 1994, Interstate is aware of the following purchase and sale
transactions of Interstate Common Stock not involving Interstate employee
benefit plans: Pursuant to a stock redemption program commenced in January
1994, in April 1994 Interstate completed the repurchase, at $14.00 per share,
of 750,006 shares and options to purchase shares of Interstate Common Stock.
In conjunction with the redemption program, Interstate also repurchased
50,000 shares of stock, based on the $14.00 per share price, from two
shareholders in exchange for the termination of their stock repurchase and
sale agreements and received from one of its executive officers 21,668 shares
of already-owned stock valued at the $14.00 per share price in payment for an
option exercise for 86,181 shares of Interstate Common Stock. Additionally,
concurrent with the redemption, all outstanding interest free loans made from
time to time to certain officers of Interstate to enable them to purchase
Interstate Common Stock from Interstate were repaid by the delivery of
Interstate Common Stock valued at $14.00 per share. Two transactions for a
total of 5,255 shares were also completed after announcement of the
redemption program but before its completion at the $14.00 per share price.
In December 1994, approximately 30,000 shares of Interstate Common Stock were
traded at $14.00 per share. In October 1995, approximately 5,000 shares of
such stock were traded at $11.00 per share.
The Interstate Retirement Plan provides a put option to participants who
hold Interstate Common Stock distributed from the Retirement Plan.
Participants have 15 months from the date of distribution to "put" their
distributed shares to Interstate at the fair market value of such stock. In
order to establish the fair market value of the stock for purposes of the put
option under the Interstate Retirement Plan, each
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year Interstate obtains an independent appraisal of such shares. At December
31, 1995, Valuation Research Corp. ("Valuation") valued Interstate Common
Stock for purposes of the put option under the Interstate Retirement Plan at
$28.60 per share, reflecting a minority interest discount but no liquidity
discount. At that date, Valuation also valued the shares of Interstate
Common Stock for purposes of transactions outside of the Interstate
Retirement Plan at $22.90 per share, applying a minority discount and a 20%
liquidity discount.
During the first three months of fiscal 1996, Interstate declared and
paid a dividend totalling $90,703 on the Interstate Common Stock. During
fiscal years 1995 and 1994, Interstate declared and paid aggregate dividends
on the Interstate Common Stock of $441,505 and $404,311, respectively.
Pursuant to Interstate's credit agreement with its bank, Interstate is
prohibited from making dividend payments or other distributions to its
shareholders in any fiscal year in excess of an amount equal to the lesser of
60% of Interstate's net earnings (as defined in the credit agreement) earned
on a cumulative basis after January 1, 1993 or $650,000. If in any fiscal
year Interstate has negative net earnings, the amount available under the
credit agreement to make dividends or other distributions to its shareholders
must be reduced on a cumulative basis by 100% of the negative net earnings.
SELECTED FINANCIAL INFORMATION OF INTERSTATE
The following table sets forth selected historical financial data for
Interstate and should be read in conjunction with the Interstate financial
statements and notes thereto appearing elsewhere in this Proxy
Statement-Prospectus. See FINANCIAL STATEMENTS OF INTERSTATE. The selected
historical financial data as of and for the five years ended December 31,
1995 have been derived from the financial statements of Interstate, which
were audited by Ernst & Young LLP, Interstate's independent auditors. The
selected historical financial data as of and for the three month periods
ended March 31, 1996 and April 2, 1995 are derived from unaudited financial
statements. In the opinion of Interstate management, such unaudited data
include all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the financial position, results of
operations and changes in cash flows for these periods. Operating results
for the three months ended March 31, 1996 are not necessarily indicative of
the results that may be expected for the entire year ending December 29, 1996.
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<TABLE>
<CAPTION>
(In Thousands)
At or for the fiscal year ended (1) At or for the three months ended
--------------------------------------------------------------------- --------------------------------
December 29, January 3, January 2, January 1, December 31, April 2, March 31,
1991 1993 1994 1995 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net Sales $60,172 $55,479 $59,324 $81,526 $86,333 $22,867 $23,743
Cost of products sold 48,490 45,169 48,142 64,644 69,413 18,078 18,931
------- ------- ------- ------- -------- ------- -------
Gross margin 11,681 10,310 11,182 16,882 16,920 4,789 4,813
Expenses:
Selling & administrative 6,093 5,605 5,406 6,442 6,672 1,773 1,641
------- ------- ------- ------- -------- ------- -------
Operating income 5,588 4,705 5,777 10,439 10,248 3,016 3,172
Interest 1,341 679 613 1,150 1,296 356 424
Other expense (2) 932 869 159 1,774 130 36 41
------- ------- ------- ------- -------- ------- -------
Income before income taxes
and cumulative effect of
change in accounting
principle 3,315 3,157 5,004 7,515 8,822 2,624 2,707
Income taxes 1,241 1,151 1,818 2,770 3,156 960 1,023
------- ------- ------- ------- -------- ------- -------
Income before cumulative
effect of change in
accounting principle 2,074 2,006 3,186 4,745 5,666 1,664 1,684
Cumulative effect of change
in accounting principle (3) -- (1,303) -- -- -- -- --
------- ------- ------- ------- -------- ------- -------
Net income $2,074 $703 $3,186 $4,745 $5,666 $1,664 $1,684
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
Balance Sheet Data:
Current assets $15,624 $13,783 $19,399 $21,299 $25,508 $23,570 $28,354
Current liabilities 9,448 10,021 13,251 17,420 21,328 18,374 17,736
Working capital 6,176 3,762 6,148 3,879 4,181 5,197 10,618
Property, plant and 32,254 32,857 32,418 37,037 43,276 39,424 44,505
equipment (net)
Total assets 50,172 47,609 54,314 60,228 70,831 64,949 75,186
Notes payable/current
portion of long-term debt 2,175 1,969 2,128 4,087 4,067 4,857 3,725
Long-term debt, less
current portion 10,001 6,850 7,366 14,291 15,756 16,949 20,514
Stockholders' equity 24,134 24,704 27,438 21,482 26,708 23,210 29,036
</TABLE>
-46-
<PAGE>
- --------------------
(1) Interstate operates on a 52 or 53 week fiscal year ending on the Sunday
closest to December 31. Fiscal year 1992 was a 53 week year, all others
were 52 weeks.
(2) Includes nonrecurring compensation expense of $1,180,247 in 1994 and
$454,000 in 1992, loss on disposal of property and equipment of $327,035
in 1994 and loss on curtailment of Interstate's pension plans of $472,468
in 1991.
(3) The cumulative effect of change in accounting principle for the fiscal
year ended January 3, 1993 relates to the adoption of Statement of
Financial Accounting Standards No.106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
-47-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF INTERSTATE
GENERAL
The following discussion and analysis provides information regarding the
historical results of operations and financial condition of Interstate for
the three months ended March 31, 1996 and April 2, 1995 and for the years
ended December 31, 1995, January 1, 1995 and January 2, 1994. This
discussion and analysis should be read in conjunction with the related
financial statements and notes thereto and other financial information of
Interstate contained elsewhere in this Proxy Statement-Prospectus. See
FINANCIAL STATEMENTS OF INTERSTATE.
This Management's Discussion and Analysis, as well as certain other
parts of this Proxy Statement-Prospectus, contain forward looking statements
with respect to Interstate that involve a number of risks and uncertainties.
Such statements are based on management's current expectations. Interstate
cautions that such statements are further qualified by important factors,
such as its relative sales concentration by both customer and industry group;
the potential loss of a significant customer constituting approximately 7% of
Interstate's total sales and 10% of Interstate's total net earnings before
interest and taxes in 1995; industry profit margins that are relatively low
as a result of significant competition and excess capacity; a competitor's
announcement that it will install a 14,000 ton mechanical forging press in
direct competition with Interstate for the North American front axle forging
market; the cyclical nature of the capital goods market; the capital
intensive nature of its business, which makes it difficult to reduce costs
quickly when sales decline; its dependence on certain key personnel;
environmental costs incident to its business; and potential uninsured product
liability losses in respect of parts manufactured for nuclear powered
vehicles or facilities or for aircraft of any kind. Each of these factors
could cause actual results to differ materially from those in the forward
looking statements. See SPECIAL CONSIDERATIONS--CONSIDERATIONS APPLICABLE TO
INTERSTATE.
OPERATIONS
QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED APRIL 2, 1995
Net sales for the quarter ended March 31, 1996 increased $.9 million, or
3.8%, over net sales for the first quarter of 1995. Tons shipped were flat
at 9,300. The increase in sales resulted from the shipment of product with
more value-added services (heat treatment, machining, painting, etc.).
Gross profit was flat despite the increase in sales. Gross profit margin
as a percentage of sales declined to 20.3% in the first quarter of 1996 from
20.9% in the comparable period last year as a result of a change in product
mix and start up costs related to new programs on the 14,000 ton press for
Dana Corporation, General Electric Company and Eaton Corporation.
Selling and administrative expenses were 6.9% of sales in the first
quarter of 1996 compared to 7.8% in the same period in 1995. The decline, as
a percentage of sales, was due to fewer sales by outside sales
representatives who are paid a commission of approximately 3.5% of sales, and
lower incentive compensation costs.
Interest expense was higher in the first quarter of 1996 as compared to
1995 primarily due to higher borrowing levels required to support the working
capital requirements of the business, offset by slightly lower market
interest rates. In addition, capitalization of interest on the 14,000 ton
press project contributed to the lower interest expense in the first quarter
of 1995.
-48-
<PAGE>
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Net income for the year increased from $4.7 million in 1994 to $5.7
million in 1995. This increase is principally due to a $1.2 million
nonrecurring compensation charge, related to the settlement of stock options,
which occurred in 1994 that was not present in 1995.
Net sales increased $4.8 million for fiscal 1995, or 5.9%, over net
sales for fiscal 1994. Tons shipped remained at 35 million. The increase in
sales resulted from the shipment of product with more value-added services
(heat treatment, machining, painting, etc.). In addition, a price increase
of approximately 3% was implemented in February, 1995.
Gross profit increased $0.1 million in fiscal 1995 as a result of the
increase in sales. Raw material (steel) costs increased approximately 10%
from the previous year. Gross profit margin as a percentage of sales
declined to 19.6% in 1995 from 20.7% in 1994 as a result of higher material
costs, and a change in product mix (i.e., more automotive product which has
lower margins). Management expects this declining margin trend to continue
into 1996.
Selling expenses were 2.15% of sales in 1995 compared to 2.3% in 1994.
The decline, as a percentage of sales, was due to fewer sales by outside
sales representatives who are paid a commission of approximately 3.5% of
sales.
Administrative expenses increased $235,000 from 1994, but were 5.6% of
sales in both 1995 and 1994. The increase in expenses was primarily related
to wage increases for administrative personnel.
Interest expense was higher in 1995 as compared to 1994 due primarily to
higher borrowing levels required for capital expenditures and a full year of
interest expense, in 1995, related to the financing of the stock redemption
versus nine months in 1994.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
Net income for the year increased from $3.2 million in 1993 to $4.7
million in 1994. This increase is principally due to the increase in sales
as described below.
Net sales in fiscal 1994 increased $22.2 million, or 37.4%, over net
sales for fiscal 1993. Tons shipped increased to 35 million from 25 million.
The increase in sales resulted from the addition of new customers, and
increased shipments to existing customers due to a general strengthening of
the economy.
Gross profit increased $5.7 million as a result of the increase in
sales. Gross profit margin as a percentage of sales increased to 20.7% in
1994 from 18.8% in 1993 as a result of higher levels of productivity
associated with the higher production volumes and the spreading of fixed
costs over a larger production base.
Selling expenses increased by $336,000 from 1993, but were 2.3% of
sales in 1994 compared to 2.6% in 1993. The increase in selling expenses was
attributable to the higher sales volumes.
Administrative expenses increased $701,000 from 1993, but were 5.6% of
sales in 1994 compared to 6.5% in 1993. The increase in expenses was
primarily related to incentive compensation and other expenses attributable
to the higher level of shipments.
Interest expense was higher in 1994 as compared to 1993 due to higher
market interest rates and higher borrowing levels associated primarily with a
repurchase of approximately $9.8 million of Interstate's stock.
-49-
<PAGE>
The nonrecurring compensation charge reflects the settlement of certain
stock options in connection with the stock repurchase referred to above.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $10.6 million at March 31, 1996, and $4.2 million,
$3.9 million and $6.2 million at the end of fiscal years 1995, 1994, and
1993, respectively. The increase between December 31, 1995 and March 31,
1996 is principally to support new programs for the 14,000 ton press, as
previously described, which are expected to contribute to sales in the second
and third quarters of 1996. The decline from 1993 to 1994 was due to an
increase in short-term borrowings related to the redemption of Interstate's
stock, as described below.
Cash provided by operating activities was negative $3.1 million for the
first quarter of 1996 compared to $290,000 for the first quarter of 1995.
The decrease in cash flow was due to an increase in accounts receivable (due
to higher sales and slightly slower payments from customers) and inventory
(tooling, raw materials and work-in-process for the new programs for the
14,000 ton press, as well as a general increase in inventory to meet customer
requirements) and a decrease in accounts payable due to timing of payments.
Interstate anticipates that cash flow will improve as the year progresses.
Cash flow from operations was $9.0 million for fiscal 1995, $8.8 million for
fiscal 1994, and $4.3 million for fiscal 1993. The increase from fiscal 1993
to 1994 was related to the increase in net income during fiscal 1994 combined
with working capital reductions resulting from inventory management programs.
At March 31, 1996, Interstate had $2.0 million available under its line
of credit, which provides for $14.0 million of borrowings (subject to
collateral availability). Interstate believes that cash generated from
operations, combined with its credit facilities, will provide it with
adequate liquidity to meet the needs of operations and capital expenditure
programs for the foreseeable future.
Capital expenditures (including certain tooling costs) amounted to $1.8
million in the first quarter of 1996 compared to $3.4 million in the same
period in 1995. A significant portion of the $1.8 million is to be paid for
by customers in the form of tooling reimbursements in the second and third
quarters of 1996. Interstate has projected capital expenditures of $6.4
million for 1996 which is down from the levels of the two previous years.
Capital expenditures for fiscal years 1995 and 1994 amounted to $10.3 million
and $8.4 million, respectively, and were primarily for the installation of
the 14,000 ton mechanical forging press, currently the largest of its kind in
the Western Hemisphere. Interstate believes this press will allow it to be a
leading producer for the heavy truck front axle market. It is anticipated
that the press will produce approximately $30 million of sales per year once
it is in full production, expected in 1999. However, Dirona (Mexico) has
recently announced that it will install a 14,000 ton mechanical forging press
in direct competition with Interstate for the North American front axle
forging market. At March 31, 1996, contracts had been entered into with
customers that will utilize approximately 70% of the Interstate 14,000 ton
press' capacity.
In April 1994, Interstate repurchased $9.8 million of its outstanding
common stock under a redemption program designed to provide liquidity for its
shareholders. Certain stock options were also settled for $1.2 million.
Funds for this repurchase were provided by $9.0 million of long-term bank
borrowings and $2.0 million of short-term borrowings.
BUSINESS OF INTERSTATE
Interstate manufactures and markets forged carbon, alloy and stainless
steel parts for various applications requiring high strength, durability and
impact resistance. Interstate operates facilities in Milwaukee, Wisconsin
(the Midwest division) and Navasota, Texas (the Southwest division).
Interstate's sales are concentrated in three primary industries:
construction machinery, petroleum services, and auto,
-50-
<PAGE>
truck and bus. These industries accounted for approximately 72% of fiscal
1995 sales. Interstate also sells to the aircraft, railroad, material
handling, mining and power generation industries. Approximately 60% of
Interstate's sales result from long-term contracts with its customers.
Interstate believes that it is among the largest independent multi-purpose
forger of ferrous alloys in the United States and that it is one of the
lowest cost, technologically sophisticated producers of steel forgings of the
type that it manufactures which weigh between one pound and 2,500 pounds.
Management believes that Interstate's success is largely attributable to its
commitment (i) to technical excellence within its core business, (ii) to
selective diversification of its target markets, and (iii) to continuous
improvement of its quality and delivery times.
Interstate uses the closed-die method of hot plastic deformation of
ferrous alloys (i.e., carbon, alloy and stainless steel). Interstate forges
its products utilizing one or more of its eight forging presses (which range
in size from 700 to 14,000 tons), its two upsetters and its ten forging
hammers (from 2,000 lbs. to 50,000 lbs.). Interstate has acquired two
additional 3,000 ton presses and one 7,000 ton press, which will be installed
when market demands dictate.
In addition to producing the forging itself, Interstate performs a
variety of other operations which support its objective of providing prompt
delivery of high-quality forged parts to its customers. Interstate
manufactures the majority of its own dies (tooling) in-house. It also cuts
the steel stock to the appropriate length for each forging and provides all
or nearly all of its own heat treatment, shot blast cleaning and Magnaflux
inspection of the completed forgings. Interstate also machines and paints
certain forgings, and can pick up steel or deliver forgings when necessary
using its fleet of seven leased Class 8 trucks. Interstate is expanding its
capabilities in the machining area and currently provides one customer with a
fully machined, painted and assembled component. Management believes that
Interstate is the only independent, multi-purpose ferrous forging supplier in
the United States that offers this combination of services for forgings
throughout the one to 2,500 pound range and that these capabilities allow it
to produce and deliver high quality ferrous forgings to customers more
quickly and efficiently than would be possible otherwise.
Interstate was organized as a Wisconsin corporation under the name
"Interstate Drop Forge Company" in 1920. It has maintained its headquarters
and plant operations in Milwaukee, Wisconsin, for the past 76 years. In 1974
it acquired Interstate Southwest Forge Company, a Texas corporation formed in
1972 by certain Interstate shareholders, which was merged into Interstate in
1979 and now operates as the Southwest division at Navasota, Texas.
PRINCIPAL SHAREHOLDERS OF INTERSTATE
The following table sets forth, as of the Record Date, certain
information with respect to the beneficial ownership of Interstate Common
Stock by (i) each person who is the beneficial owner of more than 5% of the
outstanding Interstate Common Stock, (ii) each director of Interstate, (iii)
each executive officer of Interstate, and (iv) all directors and executive
officers as a group. Except as otherwise noted, the named beneficial owner
has sole voting and/or investment power over the shares of Interstate Common
Stock indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ---------------- ---------------- ----------------
<S> <C> <C>
Marshall & Ilsley Trust Company 286,898(1) 21.8%
1000 North Water Street
Milwaukee, Wisconsin 53202
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- ---------------- ---------------- ----------------
<S> <C> <C>
Franklyn Esenberg 178,329(2)(3)(4) 13.5%
Interstate Forging Industries, Inc.
4051 North 27th Street
Milwaukee, Wisconsin 53216-1883
James Mitchell 159,284(3)(4) 11.9%
Interstate Forging Industries, Inc.
4051 North 27th Street
Milwaukee, Wisconsin 53216-1883
Everett Smith Holdings Inc. 115,760(5) 8.8%
800 North Marshall Street
Milwaukee, Wisconsin 53202-3911
G. Frederick Kasten 12,500(4)(6) .9%
Dennis J. Kuester 17,500(4) 1.3%
Frederick G. Luber 33,586(4) 2.5%
Lawrence F. Schuetz 48,974(4)(7) 3.7%
William C. Smith 22,000(4) 1.7%
David A. Boettcher 6,181(3)(4) .5%
Everett Johnson, III 10,186(3)(4)(8) .8%
David P. Lauer 6,508(3)(4) .5%
Louis Zietz 5,184(3)(4) .4%
All directors and executive officers as a group
(11 persons) 765,587(9) 54.2%
</TABLE>
- --------------------
(1) Represents shares held as trustee of the Interstate Retirement Plan and
Interstate's two pension plans.
(2) Includes 7,482 shares held by Mr. Esenberg's spouse, as to which voting
and investment power is shared.
(3) Includes the following number of shares in the named person's Savings and
Retirement Plan account, as to which voting power is shared:
Mr. Esenberg--5,967; Mr. Mitchell--6,826; Mr. Boettcher--2,408;
Mr. Johnson--3,451; Mr. Lauer--480; and Mr. Zietz--2,411.
(4) Includes unissued shares deemed to be beneficially owned by the named
persons pursuant to unexercised stock options which may be exercised
within 60 days of the Record Date. Each person holds the following number
of option shares which are deemed to be beneficially owned:
Mr. Esenberg--10,000; Mr. Mitchell--28,400; Mr. Kasten--10,000;
Mr. Kuester--10,000; Mr. Luber--10,000; Mr. Schuetz--10,000;
Mr. Smith--10,000; Mr. Boettcher--2,600; Mr. Johnson--3,300;
Mr. Lauer--2,400; and Mr. Zietz--1,600.
(5) Includes 20,280 shares held by Everett Smith Investment Company Ltd. of
Delaware, an affiliate of the named party.
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<PAGE>
(6) Includes 2,500 shares held as co-trustee of four trusts, as to which voting
and investment power is shared.
(7) Does not include 14,482 shares held by Mr. Schuetz' spouse, as to which he
disclaims beneficial ownership.
(8) Includes 1,173 shares held jointly with Mr. Johnson's spouse, as to which
voting and investment power is shared.
(9) Includes 8,655 shares as to which voting and investment power is shared
with the named persons' spouses, 2,500 shares as to which voting and
investment power is shared with a co-trustee, 98,300 shares subject to
options deemed beneficially owned, 247,649 shares held in the Interstate
Retirement Plan, as to which Interstate has shared voting and investment
power, and 39,249 shares held in Interstate's two pension plans, wherein
Interstate has shared investment power.
The above beneficial ownership information is determined in accordance
with Rule 13d-3 under the Exchange Act, as required for purposes of this
Proxy Statement-Prospectus. It is not necessarily to be construed as an
admission of beneficial ownership for other purposes.
INTERSTATE EXECUTIVE AND DIRECTOR COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the total
compensation of Franklyn Esenberg, Chairman of the Board of Interstate,
during the last three fiscal years. Mr. Esenberg, who is 63 years of age,
joined Interstate in 1951. He has served in a number of executive
capacities, including President from 1971 to 1979, when he became Chairman of
the Board. Mr. Esenberg remained Chief Executive Officer of Interstate
until January 1, 1991. Mr. Esenberg has been a director of Interstate since
1969 and is a member of the Interstate Board's Executive Committee, Audit
Committee and Committee on Salary and Supplemental Compensation. Pursuant to
the terms of the Merger Agreement, Mr. Esenberg will serve as Vice Chairman
of Interstate and become a director of Citation upon consummation of the
Merger. See THE PROPOSED MERGER--INTERESTS OF CERTAIN PERSONS IN THE
MERGER--FRANKLYN ESENBERG EMPLOYMENT AGREEMENT.
- ----------------------------------------------------------------------------
Annual Compensation
--------------------------
All
Other Annual Other
Name and Principal Compensation Compensation
Position Year Salary($)(1) ($) ($)
- ----------------------------------------------------------------------------
1995 $169,500 $4,851(2) $5,245(3)
Franklyn Esenberg
CHAIRMAN OF THE BOARD 1994 $171,500 0 $1,616
1993 $170,000 0 $1,642
- ----------------------------------------------------------------------------
- -------------------
(1) Includes Interstate Board fees paid to the individual.
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<PAGE>
(2) Reflects tax gross up in connection with Interstate's contribution on
behalf of the individual under Interstate's self-insured supplemental
medical plan for officers.
(3) Reflects Interstate's contribution to self-insured supplemental medical
plan for officers.
OPTION EXERCISES AND YEAR-END VALUES
The table below sets forth information concerning the number and value
of options outstanding at the end of the last fiscal year for Franklyn
Esenberg. Mr. Esenberg did not exercise any stock options during the last
fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS
FISCAL YEAR-END (#)(1) $ AT
FISCAL YEAR-
END ($)(2)
- --------------------------------------------------------------------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- --------------------------------------------------------------------------------
Franklyn Esenberg 10,000/0 $146,000/$0
- --------------------------------------------------------------------------------
- -------------------
(1) Represents a stock option.
(2) There is no established public trading market for Interstate Common Stock.
The value of the option for purposes of this table is based on the $28.60
per share valuation at December 31, 1995 rendered by Valuation Research
Corp. with respect to shares of Interstate Common Stock acquired pursuant
to a put option under Interstate's Savings and Retirement Plan.
DIRECTOR COMPENSATION
As a director of Interstate, Mr. Esenberg receives a monthly retainer of
$500 and a meeting fee of $1,000 per Interstate Board or committee meeting
attended, as compensation for his services. As a director of Interstate, Mr.
Esenberg was awarded on June 1, 1994 an option for 10,000 shares of
Interstate Common Stock at $14.00 per share under Interstate's 1994 Directors
and Key Employees Non-Qualified Stock Option Plan. Mr. Esenberg's option was
immediately exercisable. The option expires ten years from the date of
grant. This option will be converted into cash at the Effective Time and
will give Mr. Esenberg the right to a pro rata portion of the aggregate
amount of any Contingent Payments. See THE PROPOSED MERGER--PRINCIPAL TERMS
OF THE MERGER--MERGER CONSIDERATION.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Franklyn Esenberg, an executive officer of Interstate, served on the
Interstate Board's Salary and Supplemental Compensation Committee during the
last fiscal year.
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<PAGE>
In order to provide funds for operations at favorable rates, the
Interstate Board previously adopted a policy permitting directors and
officers to make loans to Interstate from time to time. Such loans pay
interest at 1/4 of 1% below Interstate's cost of funds. At March 31, 1996,
Mr. Esenberg and his spouse had outstanding loans to Interstate in aggregate
principal amount of $619,583. Such other outstanding loans at March 31, 1996
were $1,392,682 in aggregate principal amount. In fiscal 1995, Interstate
paid Mr. Esenberg and his spouse $69,104 in interest on their loans
outstanding during that period. It is anticipated that all loans outstanding
under this policy will be paid off, and the policy will terminate, upon
consummation of the Merger.
EXPERTS
The consolidated balance sheets of Citation and subsidiaries as of
October 1, 1995 and October 2, 1994 and the related consolidated statements
of income, stockholders' equity and cash flows for each of the years in the
three-year period ended October 1, 1995 have been incorporated by reference
in this Proxy Statement-Prospectus and in the Registration Statement in
reliance upon the report of Coopers & Lybrand L.L.P., independent certified
public accountants, given on the authority of that firm as experts in
accounting and auditing.
The financial statements of Interstate at December 31, 1995 and January
1, 1995, and for each of the years in the three year period ended December
31, 1995, appearing in this Proxy Statement-Prospectus and in the
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon
by Ritchie & Rediker, L.L.C., Birmingham, Alabama, counsel for Citation, and
Quarles & Brady, Milwaukee, Wisconsin, counsel for Interstate. Members of
the firm of Ritchie & Rediker, L.L.C. own an aggregate of 432,500 shares of
Citation Common Stock.
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<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The following pro forma condensed consolidated financial statements
reflect the consolidated financial position of Citation Corporation and its
Subsidiaries (Citation) as of March 31, 1996, and the results of its
consolidated operations for the year ended October 1, 1995, and for the six
months ended March 31, 1996. The pro forma condensed consolidated financial
statements include as a starting point the pro forma condensed consolidated
statements as presented in Citation's Form 8-K/A dated May 4, 1996, which is
incorporated by reference, and gives effect to (i) the purchase of the stock
of Southern Aluminum Castings Company and (ii) the purchase of all other
fiscal 1995 and 1996 acquisitions: (a) as if the acquisitions had occurred at
the beginning of the periods presented, with respect to statement of income
data, and (b) as if the acquisitions had occurred at the balance sheet date,
with respect to balance sheet data. Additionally, the pro forma condensed
consolidated financial statements give effect to (i) the purchase of the net
assets of Bohn Aluminum Corporation (Bohn), (ii) Citation's secondary public
offering of common stock on September 18, 1995, and (iii) the Merger: (a) as
if these events had occurred at the beginning of the periods presented, with
respect to statement of income data, and (b) as if these events had occurred
at the balance sheet date, with respect to balance sheet data. The pro forma
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements of Citation on Form 10-K for the
year ended October 1, 1995, Citation's Form 10-Q for the quarter ended March
31, 1996, Citation's Form 8-K/A dated May 4, 1996, and the financial
statements of Interstate, appearing elsewhere in this Proxy
Statement-Prospectus. The pro forma condensed consolidated financial
statements are not necessarily indicative of the actual consolidated
financial position or consolidated results of operations had the above
adjustments taken place on the dates indicated, nor do they purport to
indicate the future consolidated financial position or consolidated results
of operations of Citation.
F-1
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED OCTOBER 1, 1995 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PER 8-K/A-MAY 4, 1996 CITATION CORPORATION
CITATION CORPORATION AND SUBSIDIARIES INTERSTATE FORGING
AND SUBSIDIARIES OTHER FOR THE YEAR ENDED INDUSTRIES, INC. FOR THE YEAR
FOR THE YEAR ENDED ACQUISITION OCTOBER 1, 1995 FOR THE YEAR ENDED BUSINESS ENDED
OCTOBER 1, 1995 AND PRO FORMA DECEMBER 31, 1995 COMBINATION OCTOBER 1, 1995
PRO FORMA(A) ADJUSTMENTS(B) COMBINED ACTUAL ADJUSTMENTS(C) PRO FORMA
-------------------- -------------- -------------------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 495,052 $ 32,587 $ 527,639 $ 86,333 $ 613,972
Cost of sales 399,352 30,385 429,737 69,413 $ 2,141 501,291
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 95,700 2,202 97,902 16,920 (2,141) 112,681
Selling, general,
and administrative
expenses 47,622 931 48,553 6,672 55,225
---------- ---------- ---------- ---------- ---------- ----------
Operating income 48,078 1,271 49,349 10,248 (2,141) 57,456
Other income
(expense): 12,694 (3,857) 8,837 1,296 3,537 13,670
Interest expense,
net (519) (1) (520) 130 (390)
---------- ---------- ---------- ---------- ---------- ----------
Other, net 12,175 (3,858) 8,317 1,426 3,537 13,280
---------- ---------- ---------- ---------- ---------- ----------
Income before
provision for
income taxes 35,903 5,129 41,032 8,822 (5,678) 44,176
Provision for
income taxes 14,080 2,009 16,089 3,156 (1,578) 17,667
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 21,823 $ 3,120 $ 24,943 $ 5,666 $ (4,100) $ 26,509
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net income
per share $ 1.61 $ 1.41 $ 1.50
---------- ---------- ----------
---------- ---------- ----------
Weighted average
shares
outstanding 13,538,235 17,675,540(d) 17,675,540(d)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PER 8-K/A-MAY 4, 1996 CITATION CORPORATION
CITATION CORPORATION AND SUBSIDIARIES INTERSTATE FORGING
AND SUBSIDIARIES FOR THE SIX INDUSTRIES, INC.
FOR THE SIX OTHER MONTHS ENDED FOR THE SIX FOR THE SIX
MONTHS ENDED ACQUISITION MARCH 31, 1996 MONTHS ENDED BUSINESS MONTHS ENDED
MARCH 31, 1996 AND PRO FORMA MARCH 31, 1996 COMBINATION MARCH 31, 1996
PRO FORMA(A) ADJUSTMENTS(B) COMBINED ACTUAL(C) ADJUSTMENTS(D) PRO FORMA
-------------------- -------------- ------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 241,254 $ 16,281 $ 257,535 $ 44,616 $ 302,151
Cost of sales 199,632 15,185 214,817 35,411 $ 1,071 251,299
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 41,622 1,096 42,718 9,205 (1,071) 50,852
Selling, general,
and administrative
expenses 23,370 490 23,860 3,480 27,340
---------- ---------- ---------- ---------- ---------- ----------
Operating income 18,252 606 18,858 5,725 (1,071) 23,512
Other income
(expense):
Interest
expense, net 4,451 409 4,860 866 1,769 7,495
Other, net (336) (336) 41 (295)
---------- ---------- ---------- ---------- ---------- ----------
4,115 409 4,524 907 1,769 7,200
---------- ---------- ---------- ---------- ---------- ----------
Income before
provision for
income taxes 14,137 197 14,334 4,818 (2,840) 16,312
Provision for
income taxes 5,653 80 5,733 1,708 (917) 6,524
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 8,484 $ 117 $ 8,601 $ 3,110 $ (1,923) $ 9,788
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net income
per share $ 0.48 $ 0.49 $ 0.55
---------- ---------- ----------
---------- ---------- ----------
Weighted average
shares
outstanding 17,675,540 17,675,540 17,675,540
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
INTERSTATE
CITATION CITATION FORGING
CORPORATION OTHER CORPORATION AND INDUSTRIES, INC.
AND ACQUISITION SUBSIDIARIES AT BUSINESS
SUBSIDIARIES AND PRO FORMA MARCH 31, 1996 COMBINATION
ACTUAL ADJUSTMENTS(A) COMBINED ACTUAL(B) ADJUSTMENTS(C) PRO FORMA
------------ -------------- -------------- ---------------- -------------- ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents $ 4,149 $ 66 $ 4,215 $ 4,215
Accounts
receivable 69,732 4,139 73,871 $ 15,360 89,231
Inventories 39,063 1,299 40,362 12,210 52,572
Prepaids and
other current
assets 10,912 753 11,665 779 12,444
---------- ---------- ---------- ---------- ---------- ----------
Total current
assets 123,856 6,257 130,113 28,349 158,462
Property, plant,
and equipment 192,731 5,948 198,679 44,053 $ 25,698 268,430
Other assets 40,942 2,075 43,017 2,335 45,352
---------- ---------- ---------- ---------- ---------- ----------
Total assets $ 357,529 $ 14,280 $ 371,809 $ 74,737 $ 25,698 $ 472,244
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt $ 6,553 $ 6,553 $ 3,712 $ (3,712) $ 6,553
Accounts payable 30,943 $ 3,044 33,987 7,293 41,280
Accrued expenses 28,736 978 29,714 6,731 36,445
---------- ---------- ---------- ---------- ---------- ----------
Total current
liabilities 66,232 4,022 70,254 17,736 (3,712) 84,278
Long-term debt,
less current
portion above 136,218 10,258 146,476 21,514 50,877 218,867
Deferred income
taxes and other
deferred
liabilities 14,301 14,301 6,678 7,342 28,321
---------- ---------- ---------- ---------- ---------- ----------
Total
liabilities 216,751 14,280 231,031 45,928 54,507 331,466
Stockholders'
equity:
Preferred stock 0 0 0 0 0
Common stock 177 177 2,054 (2,054) 177
Additional paid-in
capital 106,864 106,864 1,190 (1,190) 106,864
Retained earnings 33,737 33,737 25,565 (25,565) 33,737
---------- ---------- ---------- ---------- ---------- ----------
Total
stockholders'
equity 140,778 140,778 28,809 (28,809) 140,778
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities
and stockholders'
equity $ 357,629 $ 14,280 $ 371,809 $ 74,737 $ 25,698 $ 472,244
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See notes to pro forma condensed consolidated financial statements.
F-4
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The unaudited pro forma condensed consolidated statements of income of Citation
Corporation and Subsidiaries (Citation) for the year ended October 1, 1995, and
the six month period ended March 31, 1996, give effect to the consolidated
results of operations as if the purchase of the net assets of Bohn and the
Merger had occurred at the beginning of the periods presented. The unaudited pro
forma condensed consolidated statement of income for the year ended October 1,
1995 also gives effect to the consolidated results of operations for the year as
if the purchase of all other fiscal 1995 and 1996 acquisitions and Citation's
secondary public offering of common stock, effective September 18, 1995, had
occurred on October 3, 1994. The unaudited pro forma condensed consolidated
statement of income for the six-month period ended March 31, 1996 also gives
effect to the consolidated results of operations for the six-month period as if
the purchase of all other fiscal 1996 acquisitions had occurred on October 2,
1995. Those results are not necessarily indicative of the consolidated financial
results of Citation as they may be in the future, or as they might have been had
these events been effective as of October 3, 1994. The unaudited pro forma
condensed consolidated balance sheet gives effect to the consolidated financial
position at March 31, 1996, as if the Merger and the purchase of all other
fiscal 1996 acquisitions had occurred as of March 31, 1996. Such financial
position is not necessarily indicative of the consolidated financial position of
Citation as it may be in the future, or as it might have been had these events
been effective as of March 31, 1996. The pro forma information should be read in
conjunction with the consolidated financial statements of Citation on Form 10-K
for the year ended October 1, 1995, Citation's Form 10-Q for the quarter ended
March 31, 1996, Citation's Form 8-K/A dated May 4, 1996, and the financial
statements of Interstate, appearing elsewhere in this Proxy Statement -
Prospectus.
Pro forma adjustments for the condensed consolidated statement of income for the
year ended October 1, 1995, are as follows:
(a) Citation's Form 8-K/A dated May 4, 1996, which is incorporated by
reference, gives effect to (i) the purchase of the stock of Southern
Aluminum Castings Company and (ii) the purchase of all other fiscal 1995
and 1996 acquisitions as if the acquisitions had occurred on October 3,
1994.
(b) Reflects (i) the actual results of operations for Bohn (acquired April 1,
1996) for the year ended December 31, 1995, and certain adjustments for
additional depreciation ($186), interest expense on acquisition debt
($618), and amortization on intangible assets ($92), (ii) the reduction in
interest expense ($4,623) resulting from the application of the net
proceeds of Citation's secondary public offering of 4,250,000 shares of
common stock to repay $69,000 of indebtedness having a weighted average
interest rate of 6.7%, and (iii) the applicable income tax effects of the
above adjustments.
(c) Reflects (i) the increase in depreciation expense ($2,141) due to the
allocation of the excess acquisition purchase price over the fair value of
the assets acquired to property, plant, and equipment, (ii) the increase in
interest expense ($3,537) resulting from additional debt incurred by
Citation to fund the acquisition, and (iii) the applicable income tax
effects of the above adjustments.
F-5
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(d) Reflects the weighted average number of shares outstanding as if the
4,250,000 shares of common stock issued in conjunction with Citation's
September 18, 1995 secondary public offering were outstanding for the
entire year.
Pro forma adjustments for the condensed consolidated statement of income for the
six months ended March 31, 1996, are as follows:
(a) Citation's Form 8-K/A dated May 4, 1996, which is incorporated by
reference, gives effect to (i) the purchase of the stock of Southern
Aluminum Castings Company and (ii) the purchase of all other fiscal 1996
acquisitions as if the acquisitions had occurred on October 2, 1995.
(b) Reflects the actual results of operations for Bohn (acquired April 1, 1996)
for the six months ended March 31, 1996, and certain adjustments for
additional depreciation ($93), interest expense on acquisition debt ($309),
amortization on intangible assets ($46), and the income tax effects of the
purchase transaction.
(c) The income statement for the six months ending March 31, 1996 was derived
from Interstate's internal financial statements.
(d) Reflects (i) the increase in depreciation expense ($1,071) due to the
allocation of the excess acquisition purchase price over the fair value of
the assets acquired to property, plant, and equipment, (ii) the increase in
interest expense ($1,769) resulting from additional debt incurred by
Citation to fund the Interstate acquisition, and (iii) the applicable
income tax effects of the above adjustments.
Pro forma adjustments for the condensed consolidated balance sheet as of March
31, 1996, are as follows:
(a) Gives effect for the purchase of the net assets of Bohn including the
additional debt incurred by Citation to fund the acquisition ($8,250) and
the allocation of the excess purchase price to property, plant, and
equipment ($2,229) and goodwill ($1,836).
(b) The balance sheet at March 31, 1996 was derived from Interstate's internal
financial statements.
(c) Gives effect for the Merger including the additional debt incurred by
Citation to fund the acquisition ($47,165), the allocation of the excess
purchase price to property, plant, and equipment ($25,698) (based on
preliminary allocation estimates), and the recording of a deferred tax
liability related to the difference between the book and tax basis of
property, plant, and equipment resulting from the Merger ($7,342).
F-6
<PAGE>
FINANCIAL STATEMENTS OF INTERSTATE
INDEX TO FINANCIAL STATEMENTS OF INTERSTATE
PAGE
----
AUDITED FINANCIAL INFORMATION:
Report of Independent Auditors...............................................F-8
Balance Sheets at December 31, 1995 and January 1, 1995......................F-9
Statements of Income for the years ended December 31, 1995,
January 1, 1995 and January 2, 1994.....................................F-11
Statements of Stockholders' Equity for the years ended December 31, 1995,
January 1, 1995 and January 2, 1994.........................................F-12
Statements of Cash Flows for the years ended December 31, 1995,
January 1, 1995 and January 2, 1994.....................................F-13
Notes to Financial Statements...............................................F-14
UNAUDITED INTERIM PERIOD FINANCIAL INFORMATION:
Condensed Balance Sheets at March 31, 1996 and December 31, 1995............F-24
Condensed Statements of Income for the three months ended
March 31, 1996 and April 2, 1995........................................F-25
Condensed Statements of Cash Flows for the three months ended
March 31, 1996 and April 2, 1995........................................F-26
Notes to Condensed Financial Statements.....................................F-27
F-7
<PAGE>
[LETTERHEAD]
Report of Independent Auditors
Board of Directors
Interstate Forging Industries, Inc.
We have audited the accompanying balance sheets of Interstate Forging
Industries, Inc. (the Company) as of December 31, 1995 and January 1, 1995,
and the related statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interstate Forging
Industries, Inc. at December 31, 1995 and January 1, 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
February 2, 1996
F-8
<PAGE>
Interstate Forging Industries, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 1
1995 1995
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for doubtful
accounts of $225,000 in 1995 and $175,000 in 1994 $14,746,497 $12,472,042
Inventories:
Work in process--forgings 5,262,102 3,695,705
Raw materials 3,943,630 4,261,247
Other 920,097 56,289
----------------------------
Total inventories 10,125,829 8,013,241
Deferred income tax benefits (NOTE 4) 361,000 618,000
Prepaid expenses 275,070 195,482
----------------------------
Total current assets 25,508,396 21,298,765
Other assets:
Cash value of life insurance (net of policy loans)
and other assets (NOTE 2) 2,046,903 1,892,477
Equity in customers' dies 2 2
Property, plant and equipment:
Land 186,766 367,948
Buildings and improvements 12,548,089 12,650,115
Machinery and equipment 60,183,916 57,632,820
Construction in progress 13,728,985 6,945,784
----------------------------
86,647,756 77,596,667
Less allowance for depreciation 43,372,020 40,560,023
----------------------------
43,275,736 37,036,644
----------------------------
$70,831,037 $60,227,888
============================
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 1
1995 1995
----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to stockholders (NOTE 3) $ 2,367,385 $ 2,061,850
Trade payables 10,911,074 8,838,460
Employee compensation 2,537,415 2,369,970
Accrued retirement plan costs 1,102,996 517,234
Accrued postretirement benefits other than pensions 125,000 125,000
Interest and property taxes 756,952 703,609
Other accrued expenses and current liabilities 1,827,068 778,568
Current portion of long-term debt (NOTE 3) 1,700,000 2,025,000
----------------------------
Total current liabilities 21,327,890 17,419,691
Long-term debt, less current portion (NOTE 3) 15,756,114 14,291,006
Unfunded pension liabilities (NOTE 5) 1,203,766 1,664,356
Accrued postretirement benefits other than pensions,
less current portion (NOTE 7) 2,548,445 2,440,445
Deferred income taxes (NOTE 4) 3,287,000 2,930,000
Stockholders' equity (NOTES 3, 5, 6 AND 8)
Common stock, $1.00 par value:
Authorized shares--6,000,000; issued shares--
2,054,000--1995 and 1994; outstanding shares--
1,295,752--1995 and 1,299,076--1994 2,054,000 2,054,000
Additional paid-in capital 783,485 751,821
Retained earnings 34,893,108 29,668,546
----------------------------
37,730,593 32,474,367
Equity component of pension liabilities, net of
income tax benefit (672,550) (733,474)
Cost of common stock in treasury (10,350,221) (10,258,503)
----------------------------
26,707,822 21,482,390
----------------------------
$70,831,037 $60,227,888
============================
</TABLE>
SEE ACCOMPANYING NOTES.
F-10
<PAGE>
Interstate Forging Industries, Inc.
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 JANUARY 1 JANUARY 2
1995 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Net sales:
Forgings $83,428,616 $79,446,454 $57,880,309
Dies 2,904,628 2,079,354 1,444,013
------------------------------------------------
86,333,244 81,525,808 59,324,322
Cost of products sold 69,413,245 64,644,131 48,142,086
------------------------------------------------
16,919,999 16,881,677 11,182,236
Expenses:
Selling 1,857,867 1,862,702 1,527,291
Administrative 4,814,126 4,579,616 3,878,269
(Gain) loss on disposal of property and
equipment (67,921) 327,035 (94,516)
Interest, net of interest capitalized of
$504,000 in 1995 and $146,000 in 1994 1,295,858 1,150,411 613,239
Nonrecurring compensation charge (NOTE 6) - 1,180,247 -
Other, net 198,002 266,889 253,942
------------------------------------------------
8,097,932 9,366,900 6,178,225
------------------------------------------------
Income before income taxes 8,822,067 7,514,777 5,004,011
Income taxes (NOTE 4) 3,156,000 2,770,000 1,818,000
------------------------------------------------
Net income $ 5,666,067 $ 4,744,777 $ 3,186,011
================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-11
<PAGE>
Interstate Forging Industries, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Equity
Common Stock Additional ESOP Component Treasury Stock Total
------------------ Paid-In Retained Loan of Pension --------------- Stockholders'
Shares Balance Capital Earnings Guarantee Liabilities Shares Cost Equity
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 3, 1993 2,054,000 $2,054,000 $1,643,235 $22,541,968 $(1,142,699) $(26,797) 45,667 $ (365,438) $24,704,269
Net income - - - 3,186,011 - - - - 3,186,011
Dividends declared
($0.20 per share) - - - (399,899) - - - - (399,899)
Reduction of ESOP
loan guarantee - - - - 400,331 - - - 400,331
Purchase of common
stock for treasury - - - - - - 21,955 (259,069) (259,069)
Minimum liability
adjustment for
pension plans (NOTE 5) - - - - - (193,487) - - (193,487)
---------------------------------------------------------------------------------------------------------
Balance at
January 2, 1994 2,054,000 2,054,000 1,643,235 25,328,080 (742,368) (220,284) 67,622 (624,507) 27,438,156
Net income - - - 4,744,777 - - - - 4,744,777
Dividends declared
($0.29 per share) - - - (404,311) - - - - (404,311)
Reduction of ESOP
loan guarantee - - - - 742,368 - - - 742,368
Purchase of common
stock for treasury
(NOTE 8) - - - - - - 757,070 (10,598,980) (10,598,980)
Issuance of common
stock from treasury - - (891,414) - - - (69,768) 964,984 73,570
Minimum liability
adjustment for pension
plans (NOTE 8) - - - - - (513,190) - - (513,190)
---------------------------------------------------------------------------------------------------------
Balance at
January 1, 1995 2,054,000 2,054,000 751,821 29,668,546 - (733,474) 754,924 (10,258,503) 21,482,390
Net income - - - 5,666,067 - - - - 5,666,067
Dividends declared
($0.34 per share) - - - (441,505) - - - - (441,505)
Purchase of common
stock for treasury - - - - - - 11,260 (202,680) (202,680)
Issuance of common
stock from treasury - - 31,664 - - - (7,936) 110,962 142,626
Minimum liability
adjustment for pension
plans (NOTE 5) - - - - - 60,924 - - 60,924
---------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 2,054,000 $2,054,000 $ 783,485 $34,893,108 $ - $(672,550) 758,248 $(10,350,221) $26,707,822
========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
F-12
<PAGE>
Interstate Forging Industries, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 JANUARY 1 JANUARY 2
1995 1995 1994
------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,666,067 $ 4,744,777 $ 3,186,011
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,568,909 3,398,483 3,677,675
(Gain) loss on disposal of property, plant
and equipment (67,921) 327,035 (94,516)
Deferred income taxes 281,000 349,000 (15,000)
Changes in operating assets and liabilities:
Accounts receivable (2,274,455) (1,321,779) (2,337,651)
Inventories (2,112,588) (690,156) (3,231,522)
Prepaid expenses (79,588) (60,946) 82,101
Trade payables 2,072,614 1,415,940 2,568,185
Accrued expenses 1,914,052 688,028 477,956
Unfunded pension liabilities (60,382) (269,353) (185,634)
Accrued postretirement benefits other
than pensions 108,000 215,483 128,083
------------------------------------------------
Net cash provided by operating activities 9,015,708 8,796,512 4,255,688
INVESTING ACTIVITIES
Purchases of plant and equipment (10,272,288) (8,424,576) (3,238,343)
Proceeds from disposal of property, plant
and equipment 532,208 20,027 94,516
Increase in other assets (154,426) (140,902) (1,528,292)
------------------------------------------------
Net cash used in investing activities (9,894,506) (8,545,451) (4,672,119)
FINANCING ACTIVITIES
Net borrowings on notes payable to stockholders 305,535 1,378,015 12,895
Net proceeds from revolving line of credit 900,000 800,000 800,000
Payments on long-term debt (1,901,667) (1,510,833) (1,160,477)
Proceeds from long-term debt 2,141,775 8,959,454 1,422,981
Dividends paid (506,791) (288,893) (399,899)
Purchases of common stock for treasury (202,680) (9,793,874) (259,069)
Proceeds from sale of treasury stock 142,626 73,570 -
------------------------------------------------
Net cash provided by (used in) financing
activities 878,798 (382,561) 416,431
------------------------------------------------
Net change in cash - (131,500) -
Cash at beginning of year - 131,500 131,500
------------------------------------------------
Cash at end of year $ - $ - $ 131,500
================================================
Supplemental information:
Cash paid during the year for interest $ 1,688,000 $ 1,131,000 $ 648,000
Cash paid during the year for income taxes 1,875,000 2,729,000 1,805,000
Noncash transactions -
Tender of 57,507 shares by stockholders in
exchange for amounts owed on notes to
Company - 805,107 -
</TABLE>
SEE ACCOMPANYING NOTES.
F-13
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND CONCENTRATIONS
Interstate Forging Industries, Inc. (the Company) produces custom closed die
forgings of carbon, alloy and stainless steel for construction equipment,
aircraft, off-road equipment, material handling equipment, outboard motors,
and trucks and trailers. The Company's customers are located throughout North
America, but are concentrated in the Midwest and Southwest U. S.
The Company sells its products principally to the automotive/truck, oilfield
services and construction machinery industries. Sales to these industries
accounted for approximately 73% of sales in 1995, 81% of sales in 1994 and
77% of sales in 1993. Sales to four large customers in these industries
represented 24%, 9%, 7% and 7% of sales in 1995; 19%, 7%, 7% and 5% of sales
in 1994; and 27%, 10%, 10% and 2% of sales in 1993.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables are
generally due within 30 days. Credit losses historically have not been
significant and management anticipates no significant change in future
collection experience.
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to December 31. The
fiscal years ended December 31, 1995, January 1, 1995 and January 2, 1994
were comprised of 52 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of actual cost, determined using the
first-in, first-out (FIFO) method, or market. Adequate provision has been
made for obsolete or slow moving inventories.
F-14
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and includes expenditures for
new facilities and other items that substantially increase the useful lives
of existing plant and equipment. The Company capitalizes costs, including
labor and overhead, incurred by its employees in the construction of plant
and equipment. Interest costs are capitalized on assets which have a
construction period greater than one year. Depreciation of plant and
equipment is provided on the straight-line method for financial reporting
purposes and on accelerated methods for income tax purposes over the useful
economic lives of the assets.
REVENUE RECOGNITION
Revenue from sales of forging and dies is recognized upon delivery to the
customer.
STOCK COMPENSATION
The Company accounts for employee stock compensation (e.g., stock
appreciation rights and stock options) in accordance with APB Opinion No. 25
(APB No. 25), "Accounting for Stock Issued to Employees." Under APB No. 25,
the total compensation expense recognized is equal to the difference between
the award's exercise price and the underlying stock's market price (referred
to as "intrinsic value") at the measurement date, which is the first date
that both the exercise price and number of shares to be issued is known.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," is effective January 1, 1996. SFAS No. 123 allows
companies to account for stock-based awards based on the fair value of the
award at the date of grant or, alternatively, allows companies to continue
following the accounting rules under APB No. 25 with certain pro forma and
other disclosure requirements. The Company has not yet decided which
alternative it will adopt.
IMPAIRMENT
The Company is required to adopt SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," on January 1, 1996. The adoption of SFAS No. 121 will not have a
material effect on the Company's financial position.
F-15
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
2. OTHER ASSETS
Included in other assets is $1,898,825 and $1,778,656 of cash surrender value
of life insurance policies at December 31, 1995 and January 1, 1995,
respectively, net of policy loans of $28,321 and $26,454.
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of advances from certain stockholders. These advances
are due on demand and bear interest at the Company's average borrowing cost
less .25% (7.65% at December 31, 1995).
Long-term debt consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 1
1995 1995
----------------------------
<S> <C> <C>
Loans from bank under revolving credit agreement (A) $ 5,900,000 $ 5,000,000
Note payable to bank, due in quarterly
installments of $200,000, plus interest
at 7.63%, with a final principal payment
due March 31, 1999 6,800,000 7,600,000
Construction loan payable to bank (B) 3,000,000 925,000
Note payable to bank, due in quarterly
installments of $175,000 commencing
January 31, 1996, plus interest at
7.65%, with a final principal payment
due April 30, 1998 (C) 1,570,000 -
Note payable to bank (C) - 1,450,000
Note payable to bank (C) - 980,000
City of Milwaukee industrial revenue
bonds, paid in full in September 1995 - 235,000
Noninterest-bearing unsecured notes
payable, repaid in 1995 - 6,667
Other notes payable bearing interest at
2% above the prime rate 186,114 119,339
----------------------------
17,456,114 16,316,006
Less current portion 1,700,000 2,025,000
----------------------------
$15,756,114 $14,291,006
============================
</TABLE>
(A) The revolving credit agreement, as amended on January 5, 1996, provides
for a commitment of $14,000,000 (subject to collateral availability).
This agreement matures on April 30, 1998.
Revolving credit advances accrue interest, at the Company's option, at
either a Bankers Acceptance rate (up to a $5 million limit), LIBOR plus
1.90% (LIBOR) or the prime rate. These rates, at December 31, 1995, were
as follows: Bankers Acceptance--7.59%; LIBOR--7.84%; prime rate--8.50%.
The weighted-average interest rate was 7.93% for amounts outstanding on
the revolver at December 31, 1995.
F-16
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
3. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The revolving credit agreement requires, among other things, that the
Company maintain compliance with certain covenants, including minimum
net worth, financial leverage and fixed charge ratios, and limits
capital expenditures and dividends. The Company was in compliance with
all covenants at December 31, 1995.
(B) The construction loan has a $5 million limit and may be converted to a
fixed-rate term loan on October 1, 1996. Interest currently accrues at
LIBOR plus 2.15%. The principal is due in quarterly payments of $250,000
beginning December 31, 1996, with a final payment due on September 30,
2001.
(C) The two notes payable to bank were combined into one note as described
in the above table.
The revolving credit loans, the construction loan, and the notes payable to
bank are secured by a general business security agreement covering
substantially all of the Company's assets.
Maturities of long-term debt in the years subsequent to December 31, 1995,
are as follows:
Years
-----------
1996 $ 1,700,000
1997 2,500,000
1998 7,870,000
1999 5,386,114
-------------
$17,456,114
==============
The carrying value of all notes payable and long-term debt approximates their
estimated fair value at December 31, 1995 (based on discounted analyses).
4. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
<S> <C> <C> <C>
Current expense:
Federal $2,850,000 $2,290,000 $1,600,000
State 25,000 131,000 110,000
Deferred expense -
Federal and state 281,000 349,000 108,000
--------------------------------------
$3,156,000 $2,770,000 $1,818,000
======================================
</TABLE>
F-17
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
A reconciliation between the U.S. federal statutory rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
<S> <C> <C> <C>
Income tax computed using the
federal statutory rate $ 3,000,000 $ 2,555,000 $ 1,701,000
Increase (decrease) in income
tax expense resulting from:
State income taxes, net of
federal income tax benefit 29,800 82,000 73,000
Other 26,200 133,000 44,000
--------------------------------------
$ 3,156,000 $ 2,770,000 $ 1,818,000
======================================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 1
1995 1995
----------------------------------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $4,863,000 $4,651,000
Inventory valuation 105,000 -
----------------------------------
4,968,000 4,651,000
Deferred tax assets:
Pension accrual 428,000 592,000
Postretirement benefits other
than pensions 951,000 909,000
Vacation accrual 289,000 290,000
Inventory valuation - 215,000
State sales tax credit
carryforwards, expiring at various
dates through 2007 90,000 219,000
Other 284,000 114,000
----------------------------------
2,042,000 2,339,000
----------------------------------
Net deferred tax liability $2,926,000 $2,312,000
==================================
Classification in the financial
statements:
Current asset $ (361,000) $ (618,000)
Noncurrent liability 3,287,000 2,930,000
----------------------------------
$2,926,000 $2,312,000
==================================
</TABLE>
At December 31, 1995, the Company believes, based on future projected
profitability, that all gross deferred tax assets will be realized and that a
valuation allowance is not required.
F-18
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
5. RETIREMENT PLANS
The Company sponsors two defined benefit pension plans covering Milwaukee
union employees. Pursuant to its collective bargaining agreements, the
Company amended these defined benefit plans in 1991 and 1990, to cease
further benefit accruals and to freeze the current benefit rates.
The Company's funding policy is to contribute the amounts necessary to
satisfy the requirements of the Employee Retirement Income Security Act of
1974, including amortization of past service cost. Benefits are determined
based on an employee's credited service, as defined in the plan agreements.
At December 31, 1995 and December 1, 1995, the pension plans collectively
owned 39,249 shares of Company stock, with a fair value (based on an
independent appraisal) of $903,000 and $565,000, respectively.
Net pension cost included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------
<S> <C> <C> <C>
Interest cost on projected benefit obligation $ 382,113 $ 383,096 $ 377,115
Actual return on plan assets (263,857) (249,088) (250,895)
Unrecognized loss 25,286 28,556 -
------------------------------
$ 143,542 $ 162,564 $ 126,220
==============================
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Company's financial statements for its pension plans:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 1
1995 1995
---------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 4,922,197 $ 5,256,115
Nonvested benefit obligation 1,254 3,696
---------------------------------
Accumulated and projected benefit
obligations 4,923,451 5,259,811
Plan assets at fair value, principally
common stock of the Company, money
market funds and listed U.S. corporate
bonds 3,211,483 3,093,537
---------------------------------
Projected benefit obligations in
excess of plan assets 1,711,968 2,166,274
Unrecognized net loss (1,049,550) (1,145,480)
Adjustment required to recognize
minimum liability 1,049,550 1,145,480
---------------------------------
Accrued pension cost - current 1,711,968 2,166,274
Less amount included in accrued
retirement plan costs 508,202 501,918
---------------------------------
Unfunded pension liability - noncurrent $ 1,203,766 $ 1,664,356
=================================
</TABLE>
F-19
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
5. Retirement Plans (continued)
The assumptions used in determining the pension expense and, in the case of
the discount rate, the actuarial present values at the end of the year were
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Discount rate 8% 7.5% 8.5%
Long-term rate of return on plan assets 9 9 9
</TABLE>
In addition to those benefits provided by the frozen defined benefit plans
described above, the Company's union workforce participates in multi-employer
pension plans sponsored by two labor unions. The Company's contribution to
these plans (and expense) was $150,000 in 1995, $161,000 in 1994 and $147,000
in 1993.
The Company has a defined contribution 401(k) plan covering non-union
employees. Participating employees may contribute up to 15% of their
compensation. Matching contributions by the Company are discretionary. In
1995, the Company matched 100% of the employee's contribution, up to 4% of
their compensation, in Company stock, and matched in cash 25% of the
employee's contribution from 5% to 8% of their compensation. In 1994,
matching contributions equal to 100% of the employee's contribution up to 4%
of compensation were made in shares of the Company's common stock. The
Company recorded expense of $723,000 in 1995, $314,000 in 1994 and $255,000
in 1993 related to its contributions to the plan.
The 401(k) plan (including the Company's Employee Stock Ownership Plan
(ESOP), which was merged into the 401(k) plan on December 31, 1994), provides
a put option to participants who hold the Company's common stock.
Participants have 15 months from the date of distribution to "put" their
distributed shares to the Company at the fair market value on the date they
exercise the put. At December 31, 1995, this plan held 232,000 shares of the
Company's common stock which, when distributed, would represent an aggregate
liability to the Company of approximately $6,700,000 based on the estimtated
valuation at December 31, 1995.
Prior to 1995, the Company sponsored an ESOP covering substantially all
employees. The Company recorded expense of $196,000 in 1994 and $134,000 in
1993 related to the ESOP.
F-20
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
6. STOCK COMPENSATION PLANS
In 1987, the Board of Directors approved an incentive stock option plan
(which was approved by the stockholders in February 1988) (the 1987 Plan)
under which options for 568,000 shares of Common Stock could be granted
through October 1997. All options were granted in 1987 at 100% of market
value ($3.52), expire ten years from date of grant and are exercisable at the
rate of 10% per year.
In connection with the 1994 stock redemption (see Note 8), the Company
repurchased 112,619 options granted under the 1987 Plan for $1,180,247. This
cost is reflected as a nonrecurring compensation charge in the accompanying
1994 income statement. Options for 85,200 shares are currently outstanding
under the 1987 Plan, of which 28,400 are exercisable at December 31, 1995.
In 1994, the Board of Directors and Stockholders approved the 1994 Directors
and Key Employees Non Qualified Stock Option Plan (the 1994 Plan). Under this
plan, options for 120,000 shares of common stock may be granted through
December 31, 1997. Options for 97,750 shares were granted during 1994 at 100%
of fair market value ($14.00 per share). These options expire ten years from
the date of grant. Options for 70,000 shares were immediately exercisable.
The remaining 27,750 options granted under the 1994 Plan become exercisable
at a rate of 20% per year. At December 31, 1995, 75,550 options are
exercisable under the 1994 Plan.
A total of 205,200 shares of the Company's stock is reserved for potential
issuance under the 1987 Plan and the 1994 Plan.
Also in 1994, the Company implemented a Stock Appreciation Rights (SAR) plan,
under which SARs may be granted until December 31, 1997. During 1994, 29,600
rights were granted at a price of $14.00. Participants vest 20% per year
beginning five years from the grant date. Compensation expense of $330,000
and $120,000 was recognized with respect to the SARs in 1995 and 1994,
respectively.
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement benefits other than pensions, including
health care and life insurance, to certain employee groups. The Company
currently funds the cost of providing these benefits as they are incurred.
F-21
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
Employees governed by collective bargaining agreements receive the following
benefits:
- - Health insurance coverage to age 65 if they retire after age 62.
- - Life insurance coverage, in varying amounts, for the remainder of their
lives.
Certain salaried employees receive health care and life insurance benefits
for the remainder of their lives if they retire after age 60.
The net periodic postretirement benefit cost is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Service cost $ 94,000 $ 93,000 $ 77,001
Interest cost 158,000 187,000 172,516
Amortization of unrecognized gain (21,000) - -
--------------------------------
$231,000 $280,000 $249,517
================================
</TABLE>
A reconciliation of the funded status of the plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31 JANUARY 1
1995 1995
------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ 806,000 $ 864,000
Other active plan participants 1,368,445 1,181,445
------------------------------
2,174,445 2,045,445
Unrecognized net gain 499,000 520,000
------------------------------
Net postretirement benefit liability
recognized in the balance sheet 2,673,445 2,565,445
Less current portion 125,000 125,000
------------------------------
Long-term postretirement benefit
liability $2,548,445 $2,440,445
==============================
</TABLE>
F-22
<PAGE>
Interstate Forging Industries, Inc.
Notes to Financial Statements (continued)
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
Assumptions affecting the calculation of the accumulated obligation are as
follows:
- - Health care cost trend rate 10.5% for 1995 (11.0% for 1994 and 11.5%
for 1993). This rate decreases until it
levels out at 7% for the year 2006 and
thereafter.
- - Discount rate 8%--December 31, 1995 benefit obligation;
8%--1995 expense and January 1, 1995
benefit obligation; 7.5%--1994 and 1993
expense.
The effect of a one-percentage-point increase in the assumed health care cost
trend rate would have increased the 1995 expense by $55,000 and would have
increased the accumulated postretirement benefit obligation by $276,000 at
December 31, 1995.
8. STOCK REDEMPTION
In 1993, the Company's Board of Directors approved a plan to repurchase up to
750,000 shares of its common stock at $14 per share, including certain vested
stock options (see Note 6). The repurchase was completed in April 1994. In
conjunction with this plan, the Company also repurchased 50,000 shares of
stock from two significant shareholders in exchange for the termination of
their stock repurchase and sale agreements with the Company. Additionally,
all of the interest-free loans were repaid by the delivery of Company stock
at $14 per share.
9. SUBSEQUENT EVENT
The Company has reached an agreement in principle to be acquired by Citation
Corporation. This transaction is subject to a definitive agreement, the
approval of both companies' Boards of Directors and the approval of the
shareholders of the Company. The accompanying financial statements do not
reflect any effects of this transaction.
F-23
<PAGE>
INTERSTATE FORGING INDUSTRIES, INC.
CONDENSED BALANCE SHEETS
March 31, 1996 December 31, 1995
-------------- -----------------
(UNAUDITED)
ASSETS
Accounts receivable, net $ 15,360,086 $ 14,746,497
Inventory 12,209,978 10,125,829
Other current assets 778,919 636,070
------------ ------------
Current Assets 28,348,983 25,508,396
Other assets 2,334,600 2,046,905
Property, plant & equipment 88,487,232 86,647,756
Less accumulated depreciation 44,434,020 43,372,020
------------ ------------
Net property, plant and equipment 44,053,212 43,275,736
------------ ------------
TOTAL ASSETS $74,736,795 $70,831,037
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 2,012,265 $ 2,367,385
Trade payables 7,292,898 10,911,074
Accrued expenses and income taxes 6,730,889 6,349,431
Current portion of long-term debt 1,700,000 1,700,000
------------ ------------
Current liabilities 17,736,052 21,327,890
Long-term debt 21,513,521 15,756,114
Unfunded pension and
post-retirement benefits 3,752,211 3,752,211
Deferred income taxes 2,926,000 3,287,000
Stockholders' equity:
Common Stock, $1.00 par value; 6,000,000
shares authorized; 2,054,000 issued;
1,313,524 and 1,295,752 outstanding at
March 31, 1996 and December 31, 1995,
respectively 2,054,000 2,054,000
Additional paid-in capital 1,189,736 783,485
Retained earnings 35,813,468 34,220,558
Cost of common stock in treasury (10,248,193) (10,350,221)
------------ ------------
Stockholders' equity 28,809,011 26,707,822
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $74,736,795 $70,831,037
------------ ------------
------------ ------------
F-24
<PAGE>
INTERSTATE FORGING INDUSTRIES, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
----------------------------------
March 31, 1996 April 2, 1995
-------------- --------------
Net sales $ 23,743,435 $ 22,866,518
Cost of products sold 18,930,553 18,077,720
----------- -----------
Gross profit 4,812,882 4,788,798
Selling and administrative expenses 1,640,501 1,772,809
----------- -----------
Operating income 3,172,381 3,015,989
Other expenses:
Interest 424,349 356,097
Other, net 41,420 35,713
----------- -----------
Income before provision for income taxes 2,706,612 2,624,179
Provision for income taxes 1,023,000 960,000
----------- -----------
Net income $1,683,612 $1,664,179
----------- -----------
----------- -----------
F-25
<PAGE>
<TABLE>
<CAPTION>
INTERSTATE FORGING INDUSTRIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
----------------------------------
March 31, 1996 April 2, 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,683,612 $ 1,664,179
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,062,000 993,252
Changes in operating assets and liabilities:
Receivables (613,589) (3,828,460)
Inventories (2,084,149) 927,723
Prepaid expenses (503,849) 11,094
Trade payables (3,618,176) (331,889)
Accrued expenses 889,737 853,682
------------- --------------
Net cash provided by (used in) operating activities (3,184,414) 289,581
INVESTING ACTIVITIES
Purchases of plant and equipment (1,839,476) (3,381,031)
Decrease in other assets (287,695) (61,994)
------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (2,127,171) (3,443,025)
FINANCING ACTIVITIES
Net borrowings under short-term obligations (355,120) 769,709
Borrowings (payments) on revolving line of credit 6,100,000 1,200,000
Payments on other long-term debt (342,593) (617,500)
Proceeds from long-term debt 2,075,000
Dividends paid (90,702) (259,815)
Purchases of common stock for treasury (13,950)
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,311,585 3,153,444
NET CHANGE IN CASH -- --
Cash at beginning of period -- --
------------- --------------
CASH AT END OF PERIOD -- --
------------- --------------
------------- --------------
</TABLE>
F-26
<PAGE>
INTERSTATE FORGING INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed financial statements of Interstate Forging
Industries, Inc. ("Interstate") have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and with the
instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments, representing normal recurring accruals,
considered necessary for a fair presentation of the financial position, results
of operations, and changes in cash flows for the periods presented. The interim
results are not necessarily indicative of results for a full year.
NOTE 2 - INVENTORIES
The components of inventory at March 31, 1996 and December 31, 1995 are
summarized as follows:
March 31, 1996 December 31, 1995
-------------- -----------------
Raw materials $ 5,381,710 $ 3,943,630
Work-in-process-forgings 6,534,373 5,262,102
Other 293,895 920,097
----------- ------------
$12,209,978 $ 10,125,829
----------- ------------
----------- ------------
Inventory is carried at the lower of cost or market using the first-in, first-
out method of valuation.
NOTE 3 - SUBSEQUENT EVENT
On May 16, 1996, Interstate entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Citation Corporation ("Citation") and Citation Forging
Corporation ("Sub"), a wholly-owned subsidiary of Citation. Pursuant to the
terms of the Merger Agreement, Citation will acquire Interstate pursuant to a
statutory merger of Sub into Interstate. Outstanding shares of Interstate
Common Stock will be converted into the right to receive a cash payment upon
consummation of the transaction, and certain additional contingent cash payments
should Interstate's average annual net earnings before interest and income and
franchise taxes during the three year period ending December 31, 1998 exceed
$9,500,000.
F-27
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CITATION CORPORATION,
CITATION FORGING CORPORATION
AND
INTERSTATE FORGING INDUSTRIES, INC.
DATED AS OF
MAY 16, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I: THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.1 THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.2 EFFECTIVE TIME OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . A-7
1.3 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
1.4 EFFECTS OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . A-8
1.5 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. . . . . . . . . . . A-8
1.6 BYLAWS OF SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . . . A-8
1.7 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION . . . . . . . . . . . . A-8
1.8 CALCULATION OF COMPANY STOCK PRICE. . . . . . . . . . . . . . . . . . . A-8
1.9 EFFECT ON CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . A-9
1.10 PROTECTIVE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . .A-11
1.11 PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-12
1.12 PAYMENTS OF CONTINGENT PAYMENTS . . . . . . . . . . . . . . . . . . . .A-13
1.13 SHARES OF DISSENTING STOCKHOLDERS . . . . . . . . . . . . . . . . . . .A-14
1.14 EXCHANGE OF CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . .A-14
1.15 PAYMENTS TO HOLDERS OF STOCK APPRECIATION RIGHTS. . . . . . . . . . . .A-16
ARTICLE II: OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . .A-16
2.1 STOCKHOLDERS AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . .A-16
2.2 COMPETING TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . .A-17
2.3 DISPUTE RESOLUTION MECHANISMS . . . . . . . . . . . . . . . . . . . . .A-18
2.4 SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-20
2.5 DIRECTORS, OFFICERS AND FIDUCIARY INDEMNIFICATION. . . . . . . . . . .A-20
2.6 TAX TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-20
2.7 ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-20
2.8 JURISDICTION AND VENUE. . . . . . . . . . . . . . . . . . . . . . . . .A-20
ARTICLE III: REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . .A-20
3.1 CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . . . . . . . .A-20
3.2 BINDING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . .A-20
3.3 EFFECT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . .A-21
3.4 OWNERSHIP OF CAPITAL STOCK OF THE COMPANY . . . . . . . . . . . . . . .A-21
3.5 OPERATION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . .A-21
3.6 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .A-21
3.7 MATERIAL CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . .A-22
3.8 LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-22
3.9 REAL ESTATE; TITLE TO ASSETS. . . . . . . . . . . . . . . . . . . . . .A-22
3.10 CONDITION OF EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.11 CONTRACTS AND COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . .A-23
3.12 ALL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.13 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.14 JUDGMENTS AND DECREES . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.15 LITIGATION AND ADMINISTRATIVE PROCEEDINGS . . . . . . . . . . . . . . .A-23
3.16 NO ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.17 NAME, TRADEMARKS AND TRADE NAMES, LICENSES, ETC. . . . . . . . . . . .A-23
3.18 EMPLOYEE PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.19 EMPLOYEES AND AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.20 ORDINARY COURSE OF BUSINESS . . . . . . . . . . . . . . . . . . . . . .A-24
3.21 ACCOUNTS RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.22 BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.23 CUSTOMERS' TOOLINGS AND DIES . . . . . . . . . . . . . . . . . . . . .A-25
3.24 PREPARATION OF SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . .A-25
3.25 HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . .A-25
3.26 INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-26
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3.27 TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-26
3.28 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-26
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF CITATION AND SUB. . . . . . .A-26
4.1 CORPORATE EXISTENCE AND POWER . . . . . . . . . . . . . . . . . . . . .A-26
4.2 AUTHORITY RELATIVE TO AGREEMENT . . . . . . . . . . . . . . . . . . . .A-26
4.3 EFFECT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . .A-27
4.4 REPORTS AND FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . .A-27
4.5 NO ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . .A-27
4.6 JUDGMENTS AND DECREES . . . . . . . . . . . . . . . . . . . . . . . . .A-27
4.7 LITIGATION AND ADMINISTRATIVE PROCEEDINGS . . . . . . . . . . . . . . .A-27
4.8 DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-28
4.9 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-28
ARTICLE V: CONDUCT OF BUSINESS PENDING CLOSING. . . . . . . . . . . . . . .A-28
5.1 FULL ACCESS AND INVESTIGATION . . . . . . . . . . . . . . . . . . . . .A-28
5.2 CONTINUE BUSINESS IN REGULAR COURSE . . . . . . . . . . . . . . . . . .A-28
5.3 CONSENTS OF CITATION. . . . . . . . . . . . . . . . . . . . . . . . . .A-29
5.4 REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . .A-29
5.5 COMPANY STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . .A-30
5.6 REPRESENTATIONS OF THE COMPANY AS TO THE REGISTRATION STATEMENT . . . .A-30
5.7 CITATION'S AND SUB'S REPRESENTATIONS AS TO REGISTRATION STATEMENT. . .A-30
5.8 STATE SECURITIES FILINGS. . . . . . . . . . . . . . . . . . . . . . . .A-30
ARTICLE VI: TITLE INSURANCE; SURVEYS. . . . . . . . . . . . . . . . . . . .A-30
6.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-30
6.2 DELIVERIES PRIOR TO CLOSING.. . . . . . . . . . . . . . . . . . . . . .A-31
6.3 DELIVERIES AT CLOSING . . . . . . . . . . . . . . . . . . . . . . . . .A-31
6.4 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-31
ARTICLE VII: HART-SCOTT-RODINO. . . . . . . . . . . . . . . . . . . . . . .A-31
ARTICLE VIII: CONDITIONS TO OBLIGATIONS OF CITATION AND SUB . . . . . . . .A-31
8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. . . . . . . . . . . . .A-31
8.2 OBLIGATIONS PERFORMED . . . . . . . . . . . . . . . . . . . . . . . . .A-32
8.3 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . .A-32
8.4 DELIVERY OF CLOSING DOCUMENTS . . . . . . . . . . . . . . . . . . . . .A-32
8.5 NO LITIGATION OR GOVERNMENT INVESTIGATIONS. . . . . . . . . . . . . . .A-32
8.6 NO MATERIAL CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . .A-32
8.7 DISSENTING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . .A-32
8.8 COMPANY STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . .A-32
8.9 EFFECTIVENESS OF REGISTRATION STATEMENT . . . . . . . . . . . . . . . .A-32
8.10 BLUE SKY QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .A-32
ARTICLE IX: CONDITIONS TO COMPANY'S OBLIGATIONS . . . . . . . . . . . . . .A-32
9.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. . . . . . . . . . . . .A-32
9.2 OBLIGATIONS PERFORMED . . . . . . . . . . . . . . . . . . . . . . . . .A-33
9.3 DELIVERY OF CLOSING DOCUMENTS . . . . . . . . . . . . . . . . . . . . .A-33
9.4 COMPANY STOCKHOLDER APPROVAL. . . . . . . . . . . . . . . . . . . . . .A-33
9.5 CONSENTS AND APPROVALS. . . . . . . . . . . . . . . . . . . . . . . . .A-33
9.6 NO LITIGATION OR GOVERNMENT INVESTIGATIONS. . . . . . . . . . . . . . .A-33
9.7 EFFECTIVENESS OF REGISTRATION STATEMENT . . . . . . . . . . . . . . . .A-33
9.8 BLUE SKY QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .A-33
9.9 OPINION OF FINANCIAL ADVISOR. . . . . . . . . . . . . . . . . . . . . .A-33
9.10 NO MATERIAL CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . .A-33
ARTICLE X: DELIVERIES AT CLOSING. . . . . . . . . . . . . . . . . . . . . .A-33
10.1 DELIVERIES BY THE COMPANY AT CLOSING. . . . . . . . . . . . . . . . . .A-33
10.2 DELIVERIES BY CITATION AND THE SUB AT CLOSING. . . . . . . . . . . . .A-34
ARTICLE XI: INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . .A-35
11.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-35
11.2 LIMITS OF INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . .A-35
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11.3 METHOD OF ASSERTING CLAIMS AGAINST THE COMPANY. . . . . . . . . . . . A-36
11.4 PAYMENT OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . A-37
11.5 INDEMNIFIED CLAIMS BY CITATION. . . . . . . . . . . . . . . . . . . . A-37
11.6 METHOD OF ASSERTING CLAIM AGAINST CITATION. . . . . . . . . . . . . . A-37
11.7 EXCLUSIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
11.8 DEFINITION OF LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . A-37
11.9 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
ARTICLE XII: TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . A-38
12.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
12.2 EFFECT OF TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . A-38
12.3 AMENDMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
12.4 EXTENSION; WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . A-38
12.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER . . . . . . A-38
ARTICLE XIII: MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . A-38
13.1 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
13.2 BINDING AGREEMENT; ASSIGNMENT . . . . . . . . . . . . . . . . . . . . A-40
13.3 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
13.4 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
13.5 EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
13.6 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.7 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.8 CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.9 INCORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.10 COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.11 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.12 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
13.13 PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41
List of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-43
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INDEX TO DEFINED TERMS
TERM AGREEMENT SECTION
- ---- -----------------
1933 Act 4.4
1934 Act 4.4
ADA 3.5
ADEA 3.5
Agreement Preface
Articles of Merger 1.2
Basic Merger Payment 1.8(a)(i)
Business Recital C
CERCLA 3.25(b)(iii)
Certificates 1.14(c)
Citation Preface
Claim Notice 11.3(a)
Closing 1.3
Closing Date 1.3
Closing Merger Payment 1.8(a)(ii)
Closing Stock 1.9(c)
Closing Stockholders 1.9(c)
Code 1.9(d)
Company Preface
Company Covered Breach 11.2(a)
Company Indemnifiable Breach 11.2(b)
Company Stock Recital B
Company Stock Price 1.8(a)(iii)
Company Transaction Costs 13.5
Competing Offer 2.2(a)(i)
Competing Transaction 2.2(a)(ii)
Contingent Payments 1.9(d)
Contingent Payments List 10.1(f)
Contingent Payments Percentages 10.1(f)
Contingent Payments Rights 5.4
Contracts 3.11
Coopers 1.11(a)
Corporation Law 1.1
CPR 2.3(d)
Dispute 2.3(a)
Dissenting Stockholders 1.13
EBIT 1.9(d)
EPA 3.5
ERISA 3.5
Effective Time 1.2
Employee Plans 3.18
Environmental Laws 3.25(b)(iii)
Esenberg Employment Agreement 3.18
Excess Amount 1.11(h)
Expense List 13.5
Final Contingent Payments Payment 1.12(b)(iii)
GAAP 1.9(d)(i)
Hazardous Material 3.25(b)(i)
Indenture Act 1.14(a)
Independent Accountants 1.11(f)
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TERM AGREEMENT SECTION
- ---- -----------------
Interstate Restricted Stock 1.9(d)(i)(I)
Liens 3.9
Leases 3.8
Merger Recital A
Mitchell Employment Agreement 3.18
NLRA 3.5
Navasota Plant 1.10(a)
Notice Period 11.3(a)
OSHA 3.5
Option Agreement 1.14(a)
Option Stock 1.9(c)
Option Stock Price 1.9(c)
Paying Agent 1.14(a)
Payout Period 1.9(d)
Pension Plan 3.18
Permits 3.25(a)(v)
Permitted Liens 6.1(a)
Proxy Statement 5.4
Proxy Statement-Prospectus 5.4
Real Estate 3.9
Registration Statement 5.4
Release 3.25(b)(ii)
Replacement 2.3(l)
Request 2.3(d)
SEC 4.4
SEC Reports 4.4
Stock Appreciation Rights 1.15
Stockholders 1.9(c)
Stockholders Agents 2.1(a)
Stockholders Meeting 5.5
Sub Preface
Survey 6.1(c)
Surviving Corporation 1.4(b)
Texas Limited Partnership 1.10(a)
Title VII 3.5
Title Commitments 6.1(d)
Title Company 6.1(e)
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger dated as of May 16, 1996 (the
"Agreement") is among Citation Corporation, a Delaware corporation ("Citation"),
Citation Forging Corporation, a Wisconsin corporation (the "Sub") that is a
wholly owned subsidiary of Citation, and Interstate Forging Industries, Inc., a
Wisconsin corporation (the "Company").
RECITALS
A. The respective Boards of Directors of Citation, the Sub and the Company,
and Citation acting as the sole stockholder of the Sub, have approved of a
plan whereby the Sub will be merged into the Company (the "Merger"),
pursuant and subject to the terms and conditions of this Agreement.
B. In the Merger, all of the issued and outstanding shares of capital stock of
the Company, consisting of 1,313,524 shares of common stock, par value
$1.00 per share (the "Company Stock"), and all of the outstanding options
to purchase 182,950 shares of the common stock of the Company, will be
converted into the right to receive cash in the aggregate amount at Closing
of the Closing Merger Payment (as defined in Section 1.8), plus certain
contingent additional consideration based on the future earnings of the
Company.
C. Citation, through the merger of Sub into the Company, desires to acquire
the metal forging business being operated by the Company in Milwaukee,
Wisconsin and Navasota, Texas (the "Business").
D. The transaction described in this Agreement is subject to the approval of
the shareholders of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. This Agreement provides for the merger of Sub with and into
the Company, whereby it is contemplated that each outstanding share of
Closing Stock (as defined in Section 1.9) will be converted into the right
to receive cash in the amount of the Company Stock Price (as defined in
Section 1.8) and a portion of the Contingent Payments as contemplated by
this Agreement. As of the Effective Time (as defined in Section 1.2), Sub
will be merged with and into the Company, which shall continue to be
governed by the laws of the State of Wisconsin, and the separate existence
of Sub shall thereupon cease. The Merger shall be pursuant to the
provisions of, and shall be with the effects provided in, the Wisconsin
Business Corporation Law (the "Corporation Law").
1.2 EFFECTIVE TIME OF THE MERGER. Subject to this Agreement, articles of
merger (the "Articles of Merger") will be prepared, executed and
acknowledged by the Sub and the Company and delivered to the Secretary of
State of the State of Wisconsin (or the Wisconsin Department of Financial
Institutions should it be the appropriate agency at the time of filing)
for filing, as provided in the Corporation Law, as soon as practicable on
or after the Closing Date (as defined in Section 1.3). The Merger will
become effective when such filing is made (the "Effective Time").
1.3 CLOSING. The closing of the Merger (the "Closing") shall take place at
the offices of Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee,
Wisconsin on a date and time to be specified by the parties, or by mail if
agreed to in writing by the parties, which date shall be no later than the
fifth business day after the satisfaction of the conditions in Articles
VIII and IX (the "Closing Date").
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1.4 EFFECTS OF THE MERGER.
(a) At the Effective Time, the effects of the Merger shall be as
provided in the Corporation Law, including the effects described in
Sections 1.4(b) and 1.4(c) of this Agreement.
(b) The corporate identity, existence, purposes, powers, franchises,
privileges, assets, properties and rights of the Company (hereinafter
sometimes referred to as the "Surviving Corporation") shall continue
unaffected and unimpaired by the Merger and the corporate identity,
existence, purposes, powers, franchises, privileges, assets, properties
and rights of Sub shall be merged into the Surviving Corporation and the
Surviving Corporation shall be fully vested therewith. The separate
existence of Sub, except insofar as otherwise specifically provided by
law, shall cease at the Effective Time whereupon Sub and the Surviving
Corporation shall be and become one single corporation.
(c) At the Effective Time, the Surviving Corporation shall succeed
to, without other transfer, and shall possess and enjoy, all the rights,
privileges, assets, properties, powers and franchises both of a public and
a private nature, and be subject to all the restrictions, disabilities and
duties of Sub and the Company, and all the rights, privileges, assets,
properties, powers and franchises of Sub or the Company and all property,
real, personal and mixed, tangible or intangible, and all debts due to Sub
or the Company on whatever account, shall be vested in the Surviving
Corporation; and all rights, privileges, assets, properties, powers and
franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of Sub
or the Company; and the title to or any interest in any real estate vested
by deed or otherwise in Sub or the Company shall not revert or be in any
way impaired by reason of the Merger; provided, however, that all rights
of creditors and liens upon any property of either Sub or the Company
shall be preserved unimpaired, and all debts, liabilities and duties of
Sub or the Company shall thenceforth attach to the Surviving Corporation
and may be enforced against the Surviving Corporation to the same extent
as if said debts, liabilities and duties had been incurred or contracted
by the Surviving Corporation.
1.5 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Incorporation of the Company as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until amended in accordance with law.
1.6 BYLAWS OF SURVIVING CORPORATION. The Bylaws of the Company as in effect
immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until amended in accordance with law.
1.7 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The duly qualified and
acting directors and officers of Sub immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation, to
hold office as provided in the Bylaws of the Surviving Corporation.
1.8 CALCULATION OF COMPANY STOCK PRICE.
(a) As used in this Agreement, the following terms shall have the
meanings specified:
(i) "Basic Merger Payment" shall mean $45,409,000 less the Company
Transaction Costs;
(ii) "Closing Merger Payment" shall mean that amount calculated as
follows:
(A) the Basic Merger Payment; plus
(B) an additional amount equal to $9,952.66 multiplied by the
number of calendar days from and after April 1, 1996 to and
including the Closing Date.
(iii) "Company Stock Price" shall be that amount (rounded to four
decimal places)
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calculated as follows:
(A) the Closing Merger Payment plus $1,668,404; divided by
(B) 1,496,474.
(b) SCHEDULE 1.8 attached hereto sets forth an example of the
calculation of the Basic Merger Payment, the Closing Merger Payment and
the Company Stock Price. At the Closing, the Stockholders Agents (as
defined in Section 2.1) and Citation shall agree on the amounts of the
Basic Merger Payment, the Closing Merger Payment and the Company Stock
Price by a written closing statement.
1.9 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
capital stock or stock options:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
capital stock of the Sub will be converted into and become one fully paid
share of common stock, par value $1.00 per share, of the Surviving
Corporation.
(b) CANCELLATION OF TREASURY STOCK. All shares of Company Stock
that are owned directly or indirectly by the Company as treasury stock, if
any, will be canceled, and no consideration will be delivered in exchange
for any such shares.
(c) CONVERSION OF COMPANY STOCK. Each share of Company Stock will
be converted into the right to receive, without interest thereon, an
amount in cash equal to the Company Stock Price. In addition, each share
of common stock of the Company which is issuable by the Company pursuant
to option rights (as detailed on SCHEDULE 1.9(c), the "Option Stock")
granted by the Company, whether vested or unvested at the Effective Time,
shall be converted to an amount in cash (the "Option Stock Price") equal
to the Company Stock Price less the per share exercise price of the
related option (and less any required withholding taxes). The registered
holders of Company Stock (the "Stockholders") and the holders of options
detailed on SCHEDULE 1.9(c) immediately prior to the Effective Time shall
herein be referred to as the "Closing Stockholders." The Company Stock
and the Option Stock shall herein be referred to as the "Closing Stock."
The Closing Stockholders shall also be granted the right to receive an
amount equal to the Contingent Payments (as defined in Section 1.9(d)
hereof), if any.
(d) CONTINGENT PAYMENTS. Citation will deliver to the Closing
Stockholders aggregate additional consideration (the "Contingent
Payments") equal to five (5) times the amount by which (x) the average
annual net earnings of the Company before interest and income and
franchise taxes ("EBIT") during the three year period from January 1, 1996
through December 31, 1998 (the "Payout Period") exceeds (y) $9,500,000.00.
As partial progress payments, Citation will make payments equal to 50% of
the Contingent Payments due with respect to the first and second year's
EBIT as hereinafter provided. Such partial progress payments shall be
deemed fully earned by the Closing Stockholders even though the subsequent
year EBIT may be less than $9,500,000. Any such Contingent Payments
shall be paid in cash on the dates specified in Section 1.12 of this
Agreement, and shall be deemed to include interest compounded semiannually
at the applicable federal mid-term rate as determined in accordance with
provisions of Section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code"). For example, if the aggregate EBIT during the
Payout Period is $39,000,000, then the Contingent Payments payable to the
Closing Stockholders would be $17,500,000 ($39,000,000 - $28,500,000 =
$10,500,000 DIVIDED BY 3 = $3,500,000 x 5 = $17,500,000), subject to the
making of partial progress payments as hereinafter provided. The
following terms and conditions shall be applicable in calculating the
Contingent Payments and the payment thereof.
(i) As used in this Section 1.9, the term "EBIT" shall mean the
consolidated net earnings (or losses), before all interest,
income (federal and state) and franchise taxes, of the Company,
computed on the accrual basis of accounting in
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<PAGE>
accordance with generally accepted accounting principles
("GAAP") consistently applied and consistent with the accounting
principles applied by the Company in its prior fiscal years,
except that the following provisions shall govern the
computation of EBIT for purposes of this Section 1.9:
(A) Any loss, charge or expense agreed to by Citation and the
Stockholders Agents to be (a) not related to the ordinary
business operations of the Company, or (b) paid, incurred
or charged in connection with expansion of the business
operations presently conducted by the Company as a result
of the making of acquisitions or the opening and staffing
of new offices, or any income or revenues directly derived
therefrom, shall be excluded from such computation.
(B) Any charge or expense for the amortization of goodwill
arising out of the Merger, pursuant hereto or otherwise,
or that the purchase price thereof is in excess of the net
worth thereof, shall be excluded from such computation.
(C) Any payments, charges or expenses for allocation of home
office, executive, general and administrative expenses or
other payments, charges or expenses of Citation and the Sub
and/or its affiliates shall be excluded from such
computation.
(D) Such computation (including, without limitation, the
determination of the basis for depreciation and the
reflection of intercompany transactions) shall be made as
though the Merger had not occurred hereunder and the
Company were a single corporation with all of the Company
Stock owned by persons who are neither directly or
indirectly related to or affiliated with Citation or any of
its affiliates.
(E) The Surviving Corporation shall maintain plant and
equipment consistent with past practices of the Company,
and if such maintenance is determined to be inconsistent,
an appropriate adjustment shall be made to EBIT. Inventory
practices including maintenance and spare parts
inventories, and capitalization policies for fixed assets
shall be consistent with prior practices. There will be
deducted from EBIT any material savings in expenses and/or
reduction in costs of goods and services purchased that
would not have resulted if the Surviving Corporation had
not been affiliated with Citation. Interest will be
deducted from EBIT that is related to equipment being
purchased by the Business after March 1, 1996 that was
leased prior to March 1, 1996.
(F) Payments made for Stock Appreciation Rights as provided by
Section 1.15 hereof shall be excluded from the computation
of EBIT.
(G) No effect shall be given to: (i) any tax or financial
statement write-up of the assets of the Company based on
the consummation of the transactions described in this
Agreement; (ii) the Company's payment of the Company
Transaction Costs; (iii) any recapture income or recapture
taxes resulting from the consummation of the Merger; (iv)
any additional depreciation or amortization of intangibles
associated with a write-up of assets upon or following the
consummation of the Merger; (v) the payments of, or accrual
for, the Contingent Payments; or (vi) the payments of, or
accrual for, any prepayment penalties based on the
prepayment of any indebtedness of the Company existing as
of the
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Effective Time.
(H) To the extent that EBIT of the Company for calendar year
1996, 1997 or 1998 is reduced as a result of an event for
which the Company has indemnified Citation and the Sub
pursuant to Section 11.1 of this Agreement (and is
recoverable because all Company Indemnifiable Breaches
exceed $750,000 or the Indemnifiable Breaches relate to
matters described in Sections 11.1(c) or 11.1(d)), the
amount of such reduction shall be added back to EBIT
notwithstanding the provisions of Section 11.2 of this
Agreement.
(I) Awards of restricted Common Stock of Citation shall be made
by Citation under Citation's Incentive Award Plan to those
management personnel of the Company set forth on SCHEDULE
1.9(d)(i)-1, which schedule also indicates the number of
restricted shares of Citation Common Stock to be awarded to
each such person (the "Interstate Restricted Stock"). The
awards of Interstate Restricted Stock shall be subject to
restricted stock agreements to be executed by each awardee
of Interstate Restricted Stock, the form of which
restricted stock agreement is attached as SCHEDULE
1.9(d)(i)-2. The awards of Interstate Restricted Stock
shall be made effective on the date of the Effective Time.
The grant of Interstate Restricted Stock shall be excluded
from the computation of EBIT.
1.10 PROTECTIVE PROVISIONS. From and after the date of this Agreement and
until October 1, 1999 as to Sections 1.10(c), 1.10(d) and 1.10(f) and
December 31, 1998 as to Sections 1.10(a), 1.10(b), 1.10(e), 1.10(g) and
1.10(h), Citation shall:
(a) not cause or permit the Company to: (i) sell all or
substantially all of its assets; (ii) merge or consolidate with any other
person; or (iii) liquidate or dissolve; or (iv) purchase all or
substantially all of the assets or capital stock of any person; provided
however, that Citation and Sub shall have the right to transfer the assets
and liabilities of the Company's Navasota forging operation (the "Navasota
Plant") to a Texas limited partnership (the "Texas Limited Partnership").
The Company shall own a 99% limited partnership interest in the Texas
Limited Partnership. However, for purposes of the calculation of EBIT the
Navasota Plant shall be accounted for as being 100% owned and operated by
the Company;
(b) cause all transactions between Citation and affiliates of
Citation, on the one hand, and the Company, on the other hand, to be
conducted on an arm's length basis on terms and conditions at least as
favorable to the Company as the Company could obtain from persons who were
not Citation or affiliates of Citation;
(c) permit the Stockholders Agents and the agents, attorneys and
accountants for the Stockholders Agents to have reasonable access to all
books and records of the Company;
(d) cause the Company to maintain accounting books and records which
are the basis for the calculation of EBIT for calendar years 1996, 1997
and 1998 and the Contingent Payments;
(e) cause the Company to not enter into the ownership, active
management or operation of any business other than the business of the
Company on the date of this Agreement;
(f) subject to his resignation, death or disability and the terms of
the Mitchell Employment Agreement (as defined in Section 3.18), cause
James Mitchell to be the principal executive officer of the Company, and
Citation shall cause James Mitchell to be so elected and, subject to the
ultimate control and responsibility of the Company's Board of Directors
and Citation and subject to James Mitchell's compliance with the
procedures, policies and limitations on
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authority of Citation then in effect, James Mitchell shall have the right
to manage the business and affairs of the Company and direct the
formulation and execution of both short- and long-term corporate plans,
including, without limitation, the hiring, retention or termination of
employees, and the setting of compensation and fringe benefits (other than
with respect to James Mitchell);
(g) cause the Company to make all capital expenditures described in
the business plan of the Company attached hereto as SCHEDULE 1.10(g),
unless the Stockholders Agents agree that any such capital expenditures
should not be made; and
(h) other than through the Company it will not own, directly or
indirectly, any other forging operation without first consulting with the
Stockholders Agents about such operation.
1.11 PROCEDURES.
(a) As soon as reasonably practicable after January 1, 1997, and in
any event on or prior to March 1, 1997, Citation shall deliver to the
Stockholders Agents: (i) audited financial statements for the Company for
calendar year 1996 audited by Coopers & Lybrand L.L.P. ("Coopers"), with
the costs of such audit to be borne by Citation and not taken into account
in the calculation of EBIT; (ii) a statement setting forth Citation's
calculation of the EBIT for calendar year 1996; (iii) a statement setting
forth Citation's calculation of the amount of the Contingent Payments for
1996 and the amount of such Contingent Payments payable pursuant to
Section 1.12(b)(i) of this Agreement; and (iv) a special report by Coopers
regarding Citation's calculation of the EBIT and the Contingent Payments
for calendar year 1996.
(b) As soon as reasonably practicable after January 1, 1998, and in
any event on or prior to March 1, 1998, Citation shall deliver to the
Stockholders Agents: (i) audited financial statements for the Company for
calendar year 1997 audited by Coopers, with the costs of such audit to be
borne by Citation and not taken into account in the calculation of EBIT;
(ii) a statement setting forth Citation's calculation of the EBIT for
calendar years 1996 and 1997; (iii) a statement setting forth Citation's
calculation of the amount of the Contingent Payments for 1996 and 1997 and
the amount of such Contingent Payments payable pursuant to Section
1.12(b)(ii) of this Agreement; and (iv) a special report by Coopers
regarding Citation's calculation of the EBIT and the Contingent Payments
for calendar years 1996 and 1997.
(c) As soon as reasonably practicable after January 1, 1999, and in
any event on or prior to March 1, 1999, Citation shall deliver to the
Stockholders Agents: (i) audited financial statements for the Company for
calendar year 1998 audited by Coopers, with the costs of such audit to be
borne by Citation and not taken into account in the calculation of EBIT;
(ii) a statement setting forth Citation's calculation of the EBIT for
calendar years 1996, 1997 and 1998; (iii) a statement setting forth
Citation's calculation of the amount of the Contingent Payments and the
amount of such Contingent Payments payable pursuant to Section
1.12(b)(iii) of this Agreement; (iv) a statement setting forth the amount
of any set off under Section 1.12(c) of this Agreement against the
Contingent Payments and the basis for, and facts underlying, such set off;
and (v) a special report by Coopers regarding Citation's calculation of
the EBIT and the Contingent Payments for calendar years 1996, 1997 and
1998.
(d) Citation and the Stockholders Agents shall, throughout the
entire period from the date of this Agreement to the date of the
deliveries required by Sections 1.11(a), 1.11(b) and 1.11(c) of this
Agreement, meet and discuss any and all financial and business matters
relating to such process and the calculations of the EBIT for calendar
years 1996, 1997 and 1998 and the calculation of the amounts of the
Contingent Payments.
(e) If the Stockholders Agents object to any calculation of EBIT or
the Contingent Payments for any calendar year, the Stockholders Agents
shall, within thirty (30) calendar days after receipt of the relevant
delivery under Section 1.11(a), 1.11(b) or 1.11(c) of this Agreement:
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(i) notify Citation in writing of such objection; and (ii) deliver to
Citation the calculation of the Stockholders Agents of the EBIT and the
Contingent Payments. If Citation does not agree with the objection of the
Stockholders Agents, Citation shall, within thirty (30) calendar days
after receipt of such objection, notify the Stockholders Agents in writing
of such fact.
(f) The disagreement between Citation and Stockholders Agents may
then be submitted by either Citation or the Stockholders Agents for
resolution to Arthur Andersen LLP, Chicago, Illinois or to such other firm
of independent certified public accountants of national standing with an
office in Chicago, Illinois and which is not affiliated with Citation as
is agreed to in writing by Citation and the Stockholders Agents (the
"Independent Accountants"). Each of the parties shall furnish, at its own
expense, the Independent Accountants and the other parties with such
documents and other written information as the Independent Accountants may
request. Each party may also furnish to the Independent Accountants such
other written information and documents as it deems relevant with
appropriate copies or notification being given to the other parties. The
Independent Accountants may, at their discretion, conduct a conference
concerning the disagreement with Citation and the Stockholders Agents, at
which conference each party shall have the right to present such
additional documents, materials and other information and to have present
such advisors, counsel and accountants as each party shall choose in its
sole discretion. In connection with such process, there shall be no
hearings, oral examinations, testimony, depositions, discovery or other
similar proceedings conducted by any party or by the Independent
Accountants. The Independent Accountants shall determine the proportion
of their fees and expenses to be paid by each of Citation and the
Stockholders Agents, the greater the degree to which the Independent
Accountants have accepted the position of a party, the smaller the
proportion of fees and expenses assessed. Any fees and expenses assessed
against the Stockholders Agents shall be paid only out of the Contingent
Payments and shall not be a personal responsibility or liability of the
Stockholders Agents.
(g) The Independent Accountants shall promptly render their decision
on the question in writing and such decision shall be final and binding on
the parties.
(h) If the Independent Accountants determine that the amount of the
Contingent Payments is greater by $25,000.00 than the amount of the
Contingent Payments calculated by Citation in the relevant delivery under
Section 1.11(a), 1.11(b) or 1.11(c) of this Agreement, then Citation shall
immediately pay: (i) to the Stockholders Agents any reasonable fees and
expenses of the Stockholders Agents in connection with the procedures
specified in Sections 1.11(e), 1.11(f) and 1.11(g) of this Agreement; (ii)
to the Independent Accountants any fees and expenses assessed against
Citation pursuant to Section 1.11(f) of this Agreement; (iii) to the
Paying Agent (as defined in Section 1.14) the amount by which the
Contingent Payments determined by the Independent Accountants is greater
than the Contingent Payments theretofore paid by Citation to the Paying
Agent (the "Excess Amount"); and (D) to the Paying Agent, interest on the
Excess Amount at an annual interest rate of 8% calculated from the date of
the relevant payment by Citation to the Paying Agent under Section 1.12 of
this Agreement to the date that the Excess Amount is paid by Citation to
the Paying Agent.
1.12 PAYMENTS OF CONTINGENT PAYMENTS.
(a) All payments of Contingent Payments shall be made by Citation to
the Closing Stockholders by delivery of such amounts to the Paying Agent.
The Paying Agent shall: (i) pay all expenses of the Stockholders Agents
incurred in connection with the administration and enforcement of this
Agreement submitted in accordance with Section 2.1(g) of this Agreement;
and (ii) distribute the balance of the Contingent Payments to the Closing
Stockholders in accordance with the Contingent Payments Percentages (as
defined in Section 10.1(h)) set forth on the Contingent Payments List (as
defined in Section 10.1(h)).
(b) The Contingent Payments shall be payable by Citation in annual
installments as
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follows:
(i) On or before the date that Citation makes the deliveries
described in Section 1.11(a) of this Agreement, Citation shall
deliver to the Paying Agent an amount equal to 50% of the amount
by which the 1996 calendar year EBIT exceeds $9,500,000
multiplied by 5. For example, if the Company has an EBIT of
$10,900,000, then Citation shall pay to the Paying Agent
$3,500,000 ($10,900,000 - $9,500,000 = $1,400,000 x 5 =
$7,000,000 x 1/2 = $3,500,000).
(ii) On or before the date that Citation makes the deliveries
described in Section 1.11(b) of this Agreement, Citation shall
deliver to the Paying Agent an amount equal to 50% of the amount
by which the combined 1996 and 1997 EBIT exceeds $19,000,000
divided by 2 and multiplied by 5, less the payments of
Contingent Payments previously made. For example, if the
Company has a 1996 EBIT of $10,900,000 and a 1997 EBIT of
$11,200,000, then Citation shall pay to the Paying Agent
$375,000 ($10,900,000 + $11,200,000 = $22,100,000 - $19,000,000
= $3,100,000 DIVIDED BY 2 = $1,550,000 x 5 = $7,750,000 x 1/2 =
$3,875,000 - $3,500,000 = $375,000). As an additional example,
if the Company has a 1996 EBIT of $10,900,000 and a 1997 EBIT of
$9,000,000, then Citation shall pay to the Paying Agent $0
($10,900,000 + $9,000,000 = $19,900,000 - $19,000,000 =
$900,000 DIVIDED BY 2 = $450,000 x 5 = $2,250,000 x 1/2 =
$1,125,000 - $3,500,000 = ($2,375,000) or zero). The Closing
Stockholders shall have no obligation to return prior payments
of Contingent Payments made, even though the lack of EBIT in
subsequent years result in prior payments of Contingent
Payments being made in excess of what would otherwise be owed at
the end of three year Contingent Payments payment period.
(iii) On or before the date that Citation makes the deliveries
described in Section 1.11(c) of this Agreement, Citation shall
deliver to the Paying Agent an amount (the "Final Contingent
Payments Payment") equal to the amount by which the combined
1996, 1997 and 1998 EBIT exceeds $28,500,000 divided by 3 and
multiplied by 5, less the payments of Contingent Payments
previously made. For example, if the Company has a 1996 EBIT
of $10,900,000, a 1997 EBIT of $11,200,000 and a 1998 EBIT of
$12,000,000, then Citation shall pay to the Paying Agent
$5,458,330, ($10,900,000 + $11,200,000 + $12,000,000 =
$34,100,000 - $28,500,000 = $5,600,000 DIVIDED BY 3 = $1,866,666
x 5 = $9,333,330 - $3,500,000 and - $375,000 = $5,458,330).
(c) The amount payable as the Final Contingent Payments Payment
shall be subject to set-off by Citation for claims of indemnification
arising pursuant to Article XI herein.
1.13 SHARES OF DISSENTING STOCKHOLDERS. Any Company Stock held by a person
who complies with all of the provisions of the Corporation Law concerning
the dissenters rights of holders of common stock (a "Dissenting
Stockholder"), will not be converted as described in Sections 1.9(c) and
(d), but will become subject to the right to receive such consideration as
may be determined to be due to such Dissenting Stockholder pursuant to the
Corporation Law. Shares of Company Stock held by a Dissenting
Stockholder who, after the Effective Time, loses the right of appraisal as
provided in such law will be deemed to be converted as of the Effective
Time into the right to receive an amount payable to non-dissenting holders
of Company Stock described in Section 1.9(c) and (d) hereof.
1.14 EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. A bank or trust company that is eligible for
appointment as a trustee under the Trust Indenture Act of 1939, as amended
(the "Indenture Act") will act as paying
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agent (the "Paying Agent") for the payment of the Closing Merger Payment
on surrender of certificates representing Company Stock and upon receipt
of the applicable option agreement for each holder of Option Stock (the
"Option Agreement"). Firstar Trust Company, Milwaukee, Wisconsin, shall
act as Paying Agent unless it is ineligible to do so under the Indenture
Act, in which case the Paying Agent shall be mutually acceptable to the
parties.
(b) SUB TO PROVIDE FUNDS. Before the Effective Time the Sub will
provide to the Paying Agent the Closing Merger Payment, and Citation will
provide to the Paying Agent prior to the respective annual installment
payment dates for the Contingent Payments the funds necessary to pay the
Contingent Payments pursuant to Section 1.12.
(c) EXCHANGE PROCEDURE FOR COMPANY STOCK. As soon as practicable
after the Effective Time (but not later than 15 days following such date),
the Paying Agent will mail to each holder of record of a certificate or
certificates that immediately before the Effective Time of the Merger
represented outstanding shares of Company Stock (the "Certificates") (i) a
letter of transmittal specifying that delivery will be effected, and risk
of loss and title to the Certificates will pass, only on delivery of the
Certificates to the Paying Agent and in such form and having such other
provisions as Citation may reasonably specify, and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for the
Company Stock Price plus the contingent right to receive Contingent
Payments. On surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by the
Surviving Corporation, together with such letter of transmittal, duly
executed, and such other documents as may be reasonably required by the
Paying Agent, the holder of such Certificate will be entitled to receive
in exchange, and the Paying Agent will pay as soon as practicable to such
holder, the amount of cash into which the shares of Company Stock
represented by the Certificate so surrendered have been converted pursuant
to this Agreement, and the Certificate so surrendered will forthwith be
canceled. No interest will be paid or will accrue on the cash payable on
the surrender of any Certificate. Any holder whose Certificates have
been lost or destroyed may nevertheless obtain the amount of cash into
which the shares of Common Stock represented by such Certificates have
been converted pursuant to the provisions of this Agreement, provided such
holder delivers to Citation and the Paying Agent a statement certifying
such loss or destruction and providing for indemnity reasonably
satisfactory to Citation and the Paying Agent indemnifying Citation and
the Paying Agent against any loss or expense either of them may incur as a
result of such lost or destroyed Certificates being thereafter surrendered
to the Paying Agent. In the event of a transfer of ownership of Company
Stock which is not registered in the transfer records of the Company, a
check in payment of the proper amount of cash may be issued to a
transferee if the Certificate representing such Company Stock is presented
to the Paying Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section,
each Certificate after the Effective Time will represent only the right to
receive on such surrender in exchange for each share of Company Stock
represented thereby the Company Stock Price and its pro rata share of
Contingent Payments, if any. Any funds deposited with the Paying Agent
that remain unclaimed by the former holders of Company Stock for four
years after the Effective Time will be paid to the Surviving Corporation
on demand, and any former holders of Company Stock who have not then
complied with the instructions for exchanging their Certificates may look
only to the Surviving Corporation for payment.
(d) EXCHANGE PROCEDURE FOR HOLDERS OF OPTION STOCK. The procedure
for holders of Option Stock at the Effective Time to receive the Option
Stock Price from the Paying Agent shall be the same procedure as that
specified for payment of the Company Stock Price, as detailed in Section
1.14(c) hereof (as reasonably modified pursuant to the discretion of the
Paying Agent, as necessary), except that the holders of Option Stock shall
be required to deliver to the Paying Agent their Option Agreements giving
rise to their rights to the Option Stock, rather than being required to
deliver stock certificates as in the case of holders of Company Stock.
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(e) PAYMENT OF CONTINGENT PAYMENTS. If an amount of Contingent
Payments is due to the Closing Stockholders pursuant to the provisions
herein, Citation shall make payment of such Contingent Payments to the
Paying Agent, and the Paying Agent shall deliver payment owed to all
Closing Stockholders (other than Dissenting Stockholders) who have
delivered their Certificates or Option Agreements, as applicable, to the
Paying Agent, in accordance with Section 1.12 of this Agreement. The
right to receive Contingent Payments, if any, is an integral part of the
consideration to be received in the Merger by Closing Stockholders. Such
rights (i) will not be represented by any form of certificate or
instrument, (ii) will not be transferable, whether by sale, assignment,
pledge or other transfer, except by operation of law or the laws of
descent and distribution, (iii) will not constitute or represent any
equity or ownership interest in the Company, Sub or Citation, and (iv)
will not entitle the holder thereof to any voting or dividend rights or
any other rights common to shareholders.
(f) NO FURTHER OWNERSHIP RIGHTS IN CLOSING STOCK. All cash paid on
the surrender of shares (or rights to shares for Option Stock) of Closing
Stock plus the payment of any Contingent Payments due in accordance with
the terms of this Agreement will be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of Closing Stock, and
there will be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Closing Stock. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they will be canceled and exchanged as
provided in this Article.
1.15 PAYMENTS TO HOLDERS OF STOCK APPRECIATION RIGHTS. Upon the Effective
Time, the holders of stock appreciation rights (the "Stock Appreciation
Rights") of the Company detailed on SCHEDULE 1.15 hereof, shall be paid
from the funds of the Company the amount specified on SCHEDULE 1.15 as
full consideration for the payment in full and termination of such Stock
Appreciation Rights. Such payment from the Company to terminate the
Stock Appreciation Rights shall be excluded from the calculation of EBIT
described in Section 1.9(d) hereof.
ARTICLE II
OTHER AGREEMENTS
2.1 STOCKHOLDERS AGENTS.
(a) Upon the approval of this Agreement, the Merger and the
transactions described in this Agreement by the Stockholders, each Closing
Stockholder shall be deemed to have irrevocably constituted and appointed
Franklyn Esenberg, James Mitchell and David P. Lauer, and each of them
(the "Stockholders Agents"), as their agents and attorneys in fact with
full power of substitution to act from and after the Effective Time to do
any and all things and execute any and all documents which may be
necessary, convenient or appropriate to facilitate the consummation of the
transactions contemplated by this Agreement, including but not limited to:
(i) execution of documents and certificates pursuant to this Agreement;
(ii) receipt of payments under or pursuant to this Agreement and
disbursement thereof to the Closing Stockholders and others, as
contemplated by this Agreement; (iii) receipt and forwarding of notices
and communications pursuant to this Agreement; and (iv) administration and
enforcement of the provisions of this Agreement relating to the
calculation and payment of the Contingent Payments.
(b) In the event that the Stockholders Agents, with the advice of
counsel, are of the opinion that they require further authorization or
advice from the Closing Stockholders on any matters concerning this
Agreement, the Stockholders Agents shall be entitled to seek such further
authorization from the Closing Stockholders prior to acting on their
behalf. In such event, each Closing Stockholder shall have a number of
votes equal to the number of shares of the Company Stock (including the
Option Stock for such purposes) owned by that Closing Stockholder on the
Closing Date and the authorization of a majority of such number of such
shares shall be binding on all of the Closing Stockholders and shall
constitute the authorization by the Closing Stockholders.
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(c) Citation and the Sub shall be fully protected in dealing with
the Stockholders Agents under this Agreement and may rely upon the
authority of the Stockholders Agents to act as the agents of the Closing
Stockholders. Any payment by Citation or the Sub, or both, to the
Stockholders Agents under this Agreement shall be considered a payment by
Citation and the Sub to the Closing Stockholders. The appointment of the
Stockholders Agents is coupled with an interest and shall be irrevocable
by any Closing Stockholder in any manner or for any reason. This power of
attorney shall not be affected by the disability or incapacity of the
principal pursuant to any applicable law.
(d) Any act of the Stockholders Agents shall require the act of a
majority of the Stockholders Agents. Any of the Stockholders Agents may
resign from his capacity as a Stockholders Agent at any time by written
notice delivered to the other Stockholders Agents and to Citation. If
there is a vacancy at any time in any of the positions of Stockholders
Agents for any reason, the remaining Stockholders Agents may act with full
power and authority until such time as the remaining Stockholders Agents
shall select a successor to fill such vacancy. If at any time there is no
person acting as a Stockholders Agent for any reason, the Management
Committee of Quarles & Brady shall specify no more than three (3) of the
Closing Stockholders to act as the Stockholders Agents.
(e) Each of the Stockholders Agents acknowledges that he has
carefully read and understands this Agreement, hereby accepts such
appointment and designation, and represents that he will act in his
capacity as a Stockholders Agent in strict compliance with and conformance
to the provisions of this Agreement.
(f) The Stockholders Agents shall not be liable to Citation or to
the Closing Stockholders or to the Paying Agent for any error of judgment,
or any act done or step taken or omitted by them in good faith or for any
mistake in fact or law, or for anything which they may do or refrain from
doing in connection with this Agreement, except for their own bad faith or
willful misconduct. The Stockholders Agents may seek the advice of legal
counsel in the event of any dispute or question as to the construction of
any of the provisions of this Agreement or their duties hereunder, and
they shall incur no liability to Citation or the Closing Stockholders or
the Paying Agent and shall be fully protected with respect to any action
taken, omitted or suffered by them in good faith in accordance with the
opinion of such counsel.
(g) Any expenses incurred by the Stockholders Agents in connection
with the performance of their duties under this Agreement shall not be the
personal obligations of the Stockholders Agents but shall be payable by
the Paying Agent out of any Contingent Payments paid to the Paying Agent
pursuant to this Agreement. The Stockholders Agents may from time to time
submit invoices to the Paying Agent covering such expenses.
2.2 COMPETING TRANSACTION.
(a) As used in this Agreement, the following terms shall have the
meanings specified:
(i) "Competing Offer" shall mean any inquiry, proposal or offer
relating to a Competing Transaction.
(ii) "Competing Transaction" shall mean any of the following prior to
the Effective Time, other than the Merger as contemplated by
this Agreement: (A) a merger, consolidation, exchange of
securities, reorganization, business combination or other
similar transaction involving the Company; (B) a sale, transfer
or other disposition of all or substantially all of the assets
of the Company in a single transaction or series of related
transactions; (C) a sale of, or tender offer or exchange offer
for, or acquisition by any person or group of beneficial
ownership of, ten percent (10%) or more of the outstanding
capital stock of the Company in
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a single transaction or series of related transactions; or (D) a
public announcement of a proposal, plan, intention or agreement
to do any of the foregoing.
(b) The Company shall not, and shall not permit its officers,
directors, employees, agents or other representatives (including, without
limitation, any investment banker, attorney or accountant retained or
engaged by the Company) to, solicit, initiate, facilitate, encourage,
negotiate with respect to, discuss or agree to, any Competing Offer or any
Competing Transaction, except to the extent required by the fiduciary
duties of the Company's officers and Board of Directors under applicable
law if so advised by advice of counsel; provided, however, that this
provision shall not prohibit officers, directors, employees and
shareholders of the Company from making Competing Offers. The Company
shall notify Citation within forty-eight (48) hours following receipt of
any Competing Offer. The Company shall give Citation forty-eight (48)
hours prior notice and an opportunity to negotiate with the Company before
entering into, executing or agreeing to any Competing Offer or Competing
Transaction.
(c) The Company may, by notice to Citation at any time prior to the
Effective Time, terminate this Agreement if the Company enters into,
executes or agrees to a Competing Offer or Competing Transaction following
a determination by the Board of Directors of the Company on the advice of
counsel that such action is required by its fiduciary duties under
applicable law.
2.3 DISPUTE RESOLUTION MECHANISMS
(a) DISPUTE. As used in this Agreement, "Dispute" shall:
(i) mean any dispute or disagreement between the Company or the
Stockholders Agents and Citation concerning the interpretation
of this Agreement, the validity of this Agreement, any breach or
alleged breach by any party under this Agreement or any other
matter relating in any way to this Agreement; and
(ii) exclude any dispute or disagreement between the Stockholders
Agents and Citation concerning the Contingent Payments, which
shall be resolved pursuant to the provisions of Section 1.11 of
this Agreement.
(b) PROCEDURES. If a Dispute arises, the parties shall follow the
procedures specified in Sections 2.3(c), 2.3(d) and 2.3(e) of this
Agreement.
(c) NEGOTIATIONS. The parties shall promptly attempt to resolve any
Dispute by negotiations between the Stockholders Agents and Citation.
Either the Stockholders Agents or Citation may give the other party
written notice of any Dispute not resolved in the normal course of
business. The Stockholders Agents and Citation shall meet at a mutually
acceptable time and place within ten (10) calendar days after delivery of
such notice, and thereafter as often as they reasonably deem necessary, to
exchange relevant information and to attempt to resolve the Dispute. If
the Dispute has not been resolved by these persons within thirty (30)
calendar days of the disputing party's notice, or if the parties fail to
meet within such fifteen (15) calendar days, either the Stockholders
Agents or Citation may initiate mediation as provided in Section 2.3(d) of
this Agreement. If a negotiator intends to be accompanied at a meeting by
legal counsel, the other negotiator shall be given at least three (3)
business days' notice of such intention and may also be accompanied by
legal counsel.
(d) MEDIATION. If the Dispute is not resolved by negotiations
pursuant to Section 2.3(c) of this Agreement, the Stockholders Agents and
Citation shall attempt in good faith to resolve any such Dispute by non-
binding mediation. Either the Stockholders Agents or Citation may
initiate a non-binding mediation proceeding by a request in writing to the
other party (the "Request"), and both parties will then be obligated to
engage in a mediation. The proceeding will be conducted in accordance
with the then current Center for Public Resources ("CPR") Model Procedure
for
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Mediation of Business Disputes, with the following exceptions:
(i) if the parties have not agreed within thirty (30) calendar days
of the Request on the selection of a mediator willing to serve,
CPR, upon the request of either the Stockholders Agents or
Citation, shall appoint a member of the CPR Panels of Neutrals
as the mediator; and
(ii) efforts to reach a settlement will continue until the conclusion
of the proceedings, which shall be deemed to occur upon the
earliest of the date that: (A) a written settlement is reached;
or (B) the mediator concludes and informs the parties in writing
that further efforts would not be useful; or (C) the
Stockholders Agents and Citation agree in writing that an
impasse has been reached; or (D) a period of sixty (60) calendar
days has passed since the Request and none of the events
specified in Sections 2.3(d)(ii)(A), (B) or (C) have occurred.
No party may withdraw before the conclusion of the proceeding.
(e) ADJUDICATION. If a Dispute is not resolved by negotiation
pursuant to Section 2.3(c) of this Agreement or by mediation pursuant to
Section 2.3(d) of this Agreement within one hundred (100) calendar days
after initiation of the negotiation process pursuant to Section 2.3(c) of
this Agreement, such Dispute and any other claims arising out of or
relating to this Agreement may be heard, adjudicated and determined in an
action or proceeding filed in any state or federal court which has
jurisdiction over the parties.
(f) PROVISIONAL REMEDIES. At any time during the procedures
specified in Sections 2.3(c) and 2.3(d) of this Agreement, a party may
seek a preliminary injunction or other provisional judicial relief if in
its judgment such action is necessary to avoid irreparable damage or to
preserve the status quo. Despite such action, the parties will continue
to participate in good faith in the procedures specified in Section 2.3(c)
and 2.3(d) of this Agreement.
(g) TOLLING STATUE OF LIMITATIONS. All applicable statutes of
limitation and defenses based upon the passage of time shall be tolled
while the procedures specified in Sections 2.3(c) and 2.3(d) of this
Agreement are pending. The parties will take such action, if any, as is
required to effectuate such tolling.
(h) PERFORMANCE TO CONTINUE. Each party is required to continue to
perform its obligations under this Agreement pending final resolution of
any Dispute.
(i) EXTENSION OF DEADLINES. All deadlines specified in this Section
2.3 of this Agreement may be extended by mutual agreement between the
Stockholders Agents and Citation.
(j) ENFORCEMENT. The parties regard the obligations in this Section
2.3 of this Agreement to constitute an essential provision of this
Agreement and one that is legally binding on them. In case of a violation
of the obligations in this Section 2.3 of this Agreement by either the
Company or the Stockholders Agents or Citation, a party may bring an
action to seek enforcement of such obligations in any state or federal
court having jurisdiction over the parties.
(k) COSTS. The parties shall pay: (i) their own costs, fees, and
expenses incurred in connection with the application of the provisions of
Sections 2.3(c) and 2.3(d) of this Agreement; and (ii) fifty percent (50%)
of the fees and expenses of CPR and the mediator in connection with the
application of the provisions of Section 2.3(d) of this Agreement. The
Stockholders Agents shall have no personal obligations for pay such fees
and any such fees shall be paid by the Paying Agent out of the Contingent
Payments.
(l) REPLACEMENT. If CPR is no longer in business or is unable or
refuses or declines to act or to continue to act under Section 2.3(d) of
this Agreement for any reason, then the
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functions specified in Section 2.3(d) of this Agreement to be performed by
CPR shall be performed by another person engaged in a business equivalent
to that conducted by CPR as is agreed to by the Stockholders Agents and
Citation (the "Replacement"). If the Stockholders Agents and Citation
cannot agree on the identity of the Replacement within ten (10) calendar
days after a Request, the Replacement shall be selected by the Chief Judge
of the United States District Court for the Eastern District of Wisconsin
upon application. If a Replacement is selected by either means, Section
2.3(d) shall be deemed appropriately amended to refer to such Replacement.
2.4 SCHEDULES. If a document or matter is disclosed in any Schedule to this
Agreement, it shall be deemed to be disclosed for all purposes of this
Agreement without necessity of specific repetition or cross-reference.
All capitalized terms used in any Schedule shall have the definitions
specified in this Agreement.
2.5 DIRECTORS, OFFICERS AND FIDUCIARY INDEMNIFICATION. For a period of at
least eight (8) years after the Effective Time, Citation will, and will
cause the Company to, maintain in effect: (a) bylaw provisions, articles
of incorporation provisions, or other agreements indemnifying present or
former directors and officers of the Company and its subsidiaries who
serve or served as such at or prior to the Effective Time and former,
present or future fiduciaries of any employee benefit plan of the Company
who serve or served as such at or prior to the Effective Time; and (b)
policies of insurance: (i) insuring such officers and directors of the
Company and its subsidiaries against certain matters which arose at or
prior to the Effective Time; and (ii) insuring such fiduciaries against
certain matters which arose at or prior to, or which arise after, the
Effective Time, which in each case shall cover the same matters and be on
terms (including without limitation, limits of liability in insurance
policies) no less favorable than such articles of incorporation, bylaws or
agreements and insurance policies of the Company as are in effect at the
Effective Time.
2.6 TAX TREATMENT. The parties agree that for federal and state tax purposes
they will treat the Merger as a sale of the Company Stock by the Closing
Stockholders to Citation.
2.7 ATTORNEYS' FEES. In the event of litigation between the parties hereto to
enforce any provision of this Agreement, or for breach thereof, the party
or parties obtaining a final nonappealable judgment in their favor shall
be entitled to an award of their reasonable attorneys' fees and other
expenses incurred in prosecuting or defending such action, as the case may
be.
2.8 JURISDICTION AND VENUE. Each party hereto hereby agrees that any
proceeding relating to this Agreement must be brought in a court of
competent jurisdiction sitting in Milwaukee County, Wisconsin. Each party
hereto hereby consents to personal jurisdiction in any such action brought
in any such court, consents to service of process by registered mail made
upon such party and such party's agent and waives any objection to venue
in any such court to any claim that any such court is an inconvenient
forum.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Citation and Sub as follows:
3.1 CORPORATE EXISTENCE AND POWER. The Company is a corporation duly
organized, validly existing, and in active status under the laws of the
State of Wisconsin. The Company has the requisite corporate power and
authority to own, operate, and lease its properties as presently owned,
operated, and leased and to carry on its business as now being conducted.
The Company has no subsidiaries.
3.2 BINDING AGREEMENT. Upon the approval of this Agreement by the
shareholders of the Company, this Agreement will constitute the legal,
valid and binding obligation of the Company enforceable in accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization,
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or other laws (including court decisions) now or hereafter in effect and
affecting creditors' rights generally, and except as may be limited by
general principles of equity (regardless of whether considered in a
proceeding in equity or at law) and the discretion of the court.
3.3 EFFECT OF AGREEMENT. Other than with respect to the Hart-Scott-Rodino
Act and except as set forth on SCHEDULE 3.3 hereof, the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated herein do not require the
consent, waiver, approval, license or authorization of any person or
public authorities, where the failure to obtain such consent would have a
material adverse effect on the Company; do not violate, in any material
respect, any provision of law applicable to the Company; do not conflict
with or result in any breach of, in any material respect, the Company's
articles of incorporation or by-laws, or with or without the giving of
notice and/or the passage of time, any mortgage, deed of trust, license,
lease, indenture or other agreement or other instrument, or any order,
judgment, or any other restriction of any kind or character, to which the
Company is a party or any of the Company's property may be bound; do not
give to others any right to terminate, or result in any termination of,
any such instrument which, if terminated, would have a material adverse
effect on the Company; do not result in termination of any material
provision of any such instrument; and do not result in the creation of any
material lien, charge or encumbrance upon any of the property of the
Company.
3.4 OWNERSHIP OF CAPITAL STOCK OF THE COMPANY. Except as set forth on
SCHEDULE 3.4, there are no outstanding subscriptions, options, warrants,
rights (including stock appreciation rights and the like), convertible
securities, or other agreements or commitments obligating the Company to
issue additional shares of capital stock. The authorized capital stock
of the Company consists of 6,000,000 shares of common stock, par value
$1.00 per share, of which 1,313,524 shares are issued and outstanding.
The name, address, and number of the Company shares owned by each
Stockholder, as appears on the records of the Company's transfer agent as
of a recent date, are as set out on SCHEDULE 3.4. The name, address,
description of stock options, including number of shares and option
exercise price, for each person who has been granted options to purchase
capital stock of the Company are set out on SCHEDULE 3.4. SCHEDULE 3.4
also indicates which of the Stockholders and holders of stock options are
employees, officers, directors, specifying all such capacities or
relationships as apply in each instance.
3.5 OPERATION OF BUSINESS. Except as set forth on SCHEDULE 3.5 hereof, the
Company complies in all material respects with all laws, statutes,
ordinances, rules, regulations and orders of all governmental entities
applicable to the operations of the Business, including, without limiting
the generality of the foregoing, Title VII of the Civil Rights Act of
1964, as amended ("Title VII"), the Age Discrimination in Employment Act
of 1967, as amended ("ADEA"), the Equal Pay Act of 1963, as amended
("EPA"), the National Labor Relations Act of 1935, as amended ("NLRA"),
the Federal Employee Retirement Income Security Act, as amended ("ERISA"),
the Immigration Act, the federal Occupational Safety Health Act ("OSHA"),
and the Americans With Disabilities Act ("ADA"), except where failure to
comply could not reasonably be expected to have a material adverse effect
on the Business. Further, except as set forth in SCHEDULE 3.5 and
excluding Environmental Laws (as defined in Section 3.25), no notice has
been issued and no investigation or review is pending or threatened by any
governmental entity with respect to (i) any alleged material violation by
the Company of any law, ordinance, rule, regulation, order, policy or
guideline of any governmental entity, or (ii) any alleged material failure
to have all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of the Business.
The Company has previously made available to Citation copies of all
material reports or other documents concerning the Company or its
employees made or received by the Company during the past five years (i)
pursuant to Title VII, to OSHA, the ADEA, EPA, NLRA, ADA and ERISA, and
(ii) pursuant to workers' compensation statutes.
3.6 FINANCIAL STATEMENTS. The Company has given to Citation copies of the
Company's audited balance sheets and operating statements as of the fiscal
years ends for the years 1991, 1992,
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1993, 1994 and 1995. The December 31, 1995 Balance Sheet fairly
presents the financial condition of the Company as of December 31, 1995.
There are no material liabilities of the Company that should, according to
GAAP, consistently applied, be included in the December 31, 1995 Balance
Sheet but which are not included as liabilities therein.
3.7 MATERIAL CHANGES. Since December 31, 1995, except as disclosed on
SCHEDULE 3.7 attached hereto, there has not been:
(a) any material adverse change in the condition, financial or
otherwise, of the Business (other than changes in the ordinary course of
business, none of which individually or in the aggregate has been
materially adverse);
(b) any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting the Business;
(c) other than in the ordinary course of business, any increase in
the compensation payable or to become payable by the Company to any of its
employees or agents employed in connection with the operation of the
Business, or in any bonus payment or arrangement made to or with any
thereof;
(d) any labor dispute materially adversely affecting the Business;
(e) any merger or consolidation involving the Company through the
date of this Agreement, or any issuance of stock of the Company or of any
options or warrants in respect thereof; or
(f) any disposition of the assets of the Company other than in the
ordinary course of business.
3.8 LEASES. The Company has previously made available to Citation true and
correct copies of all of the Company's personal and real property leases
together with all amendments relating thereto involving annual payments in
excess of $75,000 (the "Leases"), which Leases are listed on SCHEDULE 3.8.
The Leases listed on SCHEDULE 3.8 constitute all of the personal and real
property leases to which the Company is a party as Lessor or Lessee
involving annual payments in excess of $75,000 other than Leases entered
into after the date hereof in the ordinary course of business. Such
Leases remain in full force and effect, and all rents and additional
amounts currently due on such Leases have been paid. No material waivers,
indulgences or postponements of the Company's obligations thereunder have
been granted by any lessor, or of any lessor's obligations by the Company.
There exists no event or occurrence, condition or act which, with the
giving of notice, the lapse of time or the happening of any further event
or condition would become a material default by the Company under such
Leases. Except as set forth on SCHEDULE 3.8, the consummation of the
transactions contemplated herein in accordance with the terms hereof will
not constitute a material default under any Lease.
3.9 REAL ESTATE; TITLE TO ASSETS. Legal descriptions of all real estate
material to the Business are set out on SCHEDULE 3.9 (the "Real Estate").
The Company has (or, with respect to assets acquired after the date
hereof, will have on the Closing Date) possession or control of its
assets, and, except as set out in SCHEDULE 3.9, the Company has good title
to all of its assets subject to no mortgage, pledge, lien, conditional
sales agreement, encumbrance, security interest, charge, or claim,
including without limitation any federal, state or municipal tax claim or
lien against any of its assets (the "Liens"), except for (i) liabilities
reflected in the December 31, 1995 Balance Sheet; (ii) liabilities
incurred in the ordinary course of business after that date; (iii)
Permitted Liens (as defined in Section 6.1); and (iv) Liens that do not
materially and adversely affect the use of the assets for operations of
the Business.
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3.10 CONDITION OF EQUIPMENT. The equipment that is presently being used in,
and which is material to, the operation of the Business is generally in
good operating condition and repair, subject only to ordinary wear and
tear.
3.11 CONTRACTS AND COMMITMENTS. The Company has previously made available to
Citation true and correct copies of all of the contracts, which constitute
all of the outstanding contracts, agreements, commitments or
understandings (written or oral) to which the Company is a party (other
than any contract terminable by the Company upon written notice of 30 days
or less without penalty, any contract involving an aggregate annual
expenditure by the Company of $75,000.00 or less, contracts arising from
purchase orders with customers and suppliers entered into in the ordinary
course of business, or contracts entered into after the date hereof in the
ordinary course of business), which contracts are listed on SCHEDULE 3.11
(the "Contracts"). Except as is disclosed on SCHEDULE 3.11.1, the
Company is not subject to nor a party to any mortgage, lien, lease,
agreement, contract, instrument, order, judgment or decree or any other
restriction of any kind or character which would materially hinder the
continued operation of the Business by the Surviving Corporation after the
Closing on substantially the same basis as theretofore operated.
SCHEDULE 3.11.1 includes a list of all of the Company's indebtedness as of
December 31, 1995. The Company has made available to Citation copies of
all of the loan documents to which it is a party.
3.12 ALL ASSETS. The assets included in the December 31, 1995 Balance Sheet
and/or subject to a Lease and the assets included in SCHEDULE 3.17
hereafter described constitute all the material properties of any nature
with which the Company has conducted the Business for the twelve month
period prior to December 31, 1995, subject to sale of inventory,
collection of accounts receivable and additions and deletions of other
assets in the ordinary course of business and except for toolings and dies
as described by SCHEDULE 3.23.
3.13 INSURANCE. Set forth on SCHEDULE 3.13 attached hereto is a true and
correct schedule of all policies of insurance on which the Company is
named as an insured party, and said schedule includes the name of the
insurer, the nature of the insurance coverage and the policy limits. The
policies listed upon SCHEDULE 3.13 are in full force and effect and all
applicable premiums thereon have been paid in full through the dates
indicated thereon.
3.14 JUDGMENTS AND DECREES. The Company is not subject to any order, judgment
or decree which would prevent the consummation of any of the transactions
contemplated hereunder or compliance by the Company with the terms,
conditions and provisions hereof.
3.15 LITIGATION AND ADMINISTRATIVE PROCEEDINGS. Except as set forth on
SCHEDULE 3.15 attached hereto, (i) there are no actions, suits, or
proceedings which have been served on the Company or, to the knowledge of
the Company, threatened against the Company, at law or in equity, which
would reasonably be expected to materially and adversely affect the
Company, by or before any federal, state or municipal court or any other
governmental department, commission, board, bureau, agency or
instrumentality, other than with respect to compliance with Environmental
Laws (as defined in Section 3.25) and (ii) to the knowledge of the
Company, the Company is not subject to any material liability by reason of
a violation of any order, rule, or regulation of any federal, state,
municipal or other governmental agency, department, commission, bureau,
board or instrumentality to which the Company is subject other than with
respect to compliance with Environmental Laws.
3.16 NO ADVERSE CHANGE. To the Company's knowledge, there exists no event,
condition or other circumstance (other than possible law or regulation
changes and economic conditions affecting the Business and similar
businesses generally) which immediately or, insofar as reasonably can be
foreseen, with a lapse of time, will materially adversely affect the
Business as conducted by the Company.
3.17 NAME, TRADEMARKS AND TRADE NAMES, LICENSES, ETC. The Company owns or
has adequate licenses or other rights to use its name and all material
trademarks, service marks, trade names, licenses,
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laboratory ratings and approvals, copyrights, patents, proprietary
information, and designs either used in, or necessary for, the conduct of
its Business; and all trademarks, service marks, trade names, licenses,
laboratory ratings and approvals, copyrights, designs owned by or under
license to the Company together with all pertinent information related
thereto, including filing, registration and expiration dates, serial
numbers, record owners and licenses and their essential terms are listed
on SCHEDULE 3.17 attached hereto.
3.18 EMPLOYEE PLANS. Except (a) for the Employment Agreement between James
Mitchell, the Company and Citation in the form of SCHEDULE 10.1(c) hereto
(the "Mitchell Employment Agreement"); (b) the Employment Agreement
between the Company and Franklyn Esenberg in the form of SCHEDULE 10.1(d)
hereto (the "Esenberg Employment Agreement"); and (c) as set forth in
SCHEDULE 3.18 hereto; the Company has no written employment contracts,
consulting agreements, indemnification agreements, severance agreements,
collective bargaining agreements or any other binding agreements relating
to the employment of any of its employees, or any pension, retirement,
profit sharing, incentive compensation, bonus, option or other benefit
plans which obligate the Company to provide any significant benefits to
its employees ("Employee Plans"). The Company has performed the
obligations required to be performed by it under, and has complied in all
material respects with the provisions of, all agreements set forth on such
SCHEDULE 3.18, and all such agreements are in full force and effect and
constitute the valid and legally binding obligations of the parties
thereto. Except as set forth in the instruments referred to in said
SCHEDULE 3.18 and except as may be required by applicable law, upon
termination of the employment of any of said employees, neither the
Company nor Citation will by reason of anything done prior to the Closing
hereunder be liable to any of said employees for any material amount of
so-called severance pay or any other pay. SCHEDULE 3.18 contains a true
and complete list of all material employee benefit arrangements currently
in effect covering employees of the Company.
Other than as disclosed on SCHEDULE 3.18 hereto, at no time in the
past ten years or at the date hereof has there been (and at no time from
and after the date hereof through the Closing Date will there be) any
pension, retirement, disability, medical, dental or other health plan,
life insurance or other death benefit plan, profit sharing, deferred
compensation, bonus or other incentive plan, vacation benefit plan,
severance plan, or other employee benefit plan or arrangement, including,
without limitation, any pension plan ("Pension Plan") as defined in
Section 3(2) of ERISA, and any "welfare plan" as defined in Section 3(1)
of ERISA, whether or not any of the foregoing is funded, and whether
written or oral, (a) to which the Company is or was a party or by which it
is or was bound and (b) with respect to which the Surviving Corporation
will have any material liability after Closing (including any such plan or
arrangement formerly maintained by the Company).
3.19 EMPLOYEES AND AGENTS. The Company is not a party to any consulting or
similar agreements with respect to consultants or agents, except as
described by SCHEDULE 3.19, which schedule also contains a true and
accurate list of all salaried employees and their salary rates, a list of
the rates of compensation for hourly employees in the Business and amounts
paid on account of any incentive programs for the twelve month period
ended December 31, 1995.
3.20 ORDINARY COURSE OF BUSINESS. Other than as specifically disclosed to
Citation hereunder or as set forth on SCHEDULE 3.20, since December 31,
1995, the Company has conducted its business solely in the usual and
ordinary manner and has refrained from any transaction not in the ordinary
course of business.
3.21 ACCOUNTS RECEIVABLE. All of the Company outstanding accounts receivable
included as assets in the December 31, 1995 Balance Sheet are bona fide,
arose in the ordinary course of business and, to the Company's knowledge,
are collectible in full (less any reserve for bad debts). The prior
sentence will not be construed by Citation or the Sub as a guaranty of
collection.
3.22 BOOKS AND RECORDS. The Company has maintained its books of account for
the five fiscal years ended December 31, 1995 in accordance with GAAP,
consistently applied.
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3.23 CUSTOMERS' TOOLINGS AND DIES. SCHEDULE 3.23 is a list of all of the
tooling and dies belonging to the Company's customers that are in the
possession of the Company, such list having detail as to customer name,
part number and description.
3.24 PREPARATION OF SCHEDULES. The Company's Schedules attached hereto have
been prepared by the management of the Company. The statements of fact
made by the Company in this Agreement and in the Company's Schedules are
true and correct in all material respects as of the date of this Agreement
and do not omit any fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading in any material respect as of the date of this Agreement. The
statements and information contained in the Schedules shall be deemed to
constitute representations and warranties of the Company under this
Agreement to the same extent as if herein set forth in full.
3.25 HAZARDOUS MATERIALS.
(a) Except as disclosed on SCHEDULE 3.25(a) and to the knowledge of the
Company:
(i) neither the Company nor any other person has in material
violation of Environmental Laws used or installed any Hazardous
Material (as hereinafter defined) on, from, or in the Real
Estate,
(ii) neither the Company nor any other person has violated, in any
material respect, any applicable Environmental Laws (as
hereinafter defined) relating to or affecting the Real Estate,
(iii) all of the Company Real Estate is currently in material
compliance with all Environmental Laws, and there are no facts
or circumstances currently existing upon or under such Real
Estate, or relating to such Real Estate, which may materially
violate any applicable Environmental Laws,
(iv) there is not now pending or threatened any material action,
suit, investigation or proceeding against the Company or any
such Real Estate (or against any other party relating to any
such Real Estate) seeking to enforce any material right or
remedy under any of the Environmental Laws,
(v) the Company has obtained all material licenses, permits and/or
other governmental or regulatory actions necessary to comply, in
all material respects, with Environmental Laws (the "Permits")
and is in compliance, in all material respects, with the terms
and provisions of the Permits, and
(vi) there has been no material Release (as hereinafter defined) of
any Hazardous Materials on or from such Real Estate, whether or
not such Release emanated from such Real Estate or any
contiguous real estate which would require the Company to report
and clean up the same;
(b) As used in this Agreement:
(i) "Hazardous Material" or "Hazardous Materials" means and includes
petroleum products, flammable explosives, radioactive materials,
asbestos or any material containing asbestos in any form that is
friable, polychlorinated biphenyls, and/or any hazardous or
toxic waste, substance, chemical or material defined as such, or
as a Hazardous Substance or any similar term, by, in or for the
purposes of the Environmental Laws, including, without
limitation Section 101(14) of CERCLA (hereinafter defined);
(ii) "Release" shall have the meaning given such term, or any
similar term, in the
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Environmental Laws, including, without limitation, Section
101(22) of CERCLA; and
(iii) "Environmental Law" or "Environmental Laws" shall mean any
"Super Fund" or "Super Lien" law, or any other federal, state or
local statute, law, ordinance, code, rule, regulation, order or
decree, regulating, relating to or imposing liability or
standards of conduct concerning any Hazardous Materials as may
now be in effect, including, without limitation, the following,
and all regulations promulgated thereunder or in connection
therewith: the Super Fund Amendments and Reauthorization Act of
1986; the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"); the Clean Air Act; the Clean
Water Act; the Toxic Substances Control Act; the Solid Waste
Disposal Act, as amended by the Resource Conservation and
Recovery Act; the Hazardous Waste Management System; and OSHA.
3.26 INDEBTEDNESS. Except as set forth on SCHEDULE 3.11.1, the Company is not
obligated in any material amount under any outstanding loan, financing
arrangement, capitalized lease, or other form of short or long term
indebtedness for borrowed money. At December 31, 1995 the aggregate
amount of the Company's indebtedness for borrowed money did not exceed
$19,823,499 (including the Company's revolving line of credit).
3.27 TAXES. Except as set forth on SCHEDULE 3.27: (a) all required material
federal, state and local tax returns of Company have been accurately
prepared and duly and timely filed, and all federal, state and local taxes
required to be paid with respect to the periods covered by such returns
have been paid except for those contested in good faith and for which
adequate reserves have been taken; and (b) the Company does not have any
material liability for federal or state income taxes as of December 31,
1995 that is not included as a liability in the December 31, 1995 Balance
Sheet.
3.28 SURVIVAL. The representations and warranties of the Company set forth in
this Agreement shall be continuous and shall survive the Closing for a
period of two (2) years.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CITATION AND SUB
Citation and the Sub jointly and severally represent and warrant to the
Company as follows:
4.1 CORPORATE EXISTENCE AND POWER. Citation is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Delaware; the Sub is a corporation duly organized, validly existing, and
in active status under the laws of State of Wisconsin; each of Citation
and the Sub has the requisite corporate power to own, operate, and lease
its properties as presently owned, operated, and leased and to carry on
its business as now being conducted; is duly qualified to do business and
is in good standing in each jurisdiction where the conduct of its business
or ownership of its property requires such qualification; and has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement in accordance with its terms.
4.2 AUTHORITY RELATIVE TO AGREEMENT. Each of Citation's and the Sub's
execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
effectively authorized by all necessary corporate action, including
approval of its Board of Directors. This Agreement constitutes the
legal, valid and binding obligation of each of Citation and the Sub
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization or other laws (including court
decisions) now or hereafter in effect and affecting creditors rights
generally, and except as may be limited by general principles of equity
(regardless of whether considered in a proceeding in equity or at law) and
the discretion of the court.
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4.3 EFFECT OF AGREEMENT. Other than with respect to the Hart-Scott-Rodino
Act, the execution, delivery and performance of this Agreement by each of
Citation and the Sub and the consummation by each of Citation and the Sub
of the transactions contemplated herein do not require the consent,
waiver, approval, license or authorization of any person or public
authorities, where the failure to obtain such consent would have a
material adverse effect on Citation or the Sub; do not violate, in any
material respect, any provision of law applicable to each of Citation and
the Sub; do not conflict with or result in any breach of, in any material
respect, Citation's or the Sub's articles of incorporation or bylaws, or
with or without the giving of notice and/or the passage of time, any
mortgage, deed of trust, license, lease, indenture or other agreement or
other instrument, or any order, judgment, or any other restrictions of any
kind or character, to which Citation or the Sub is a party or by which any
of Citation's or the Sub's property may be bound; do not give to others
any right to terminate, or result in any termination of, any such
instrument which, if terminated, would have a material adverse effect on
Citation or the Sub; do not result in termination of any material
provisions of such instrument; and do not result in the creation of any
material lien, charge or encumbrance upon any of the property of Citation
or the Sub.
4.4 REPORTS AND FINANCIAL STATEMENTS. All the filings required to be made by
Citation under the Securities Act of 1933, as amended (the "1933 Act"),
and the Securities Exchange Act of 1934, as amended (the "1934 Act"), have
been filed with the Securities and Exchange Commission (the "SEC"),
including all forms, statements, reports, agreements (oral or written),
and all documents, exhibits, amendments and supplements pertaining thereto
(the "SEC Reports"), and comply, as of their respective dates, in all
material respects, with all applicable requirements of the 1933 Act and
1934 Act, as the case may be, and the rules and regulations thereunder.
As of their respective dates, the SEC Reports did not contain any untrue
statement of a material fact or omit a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial
statements of Citation included in the SEC Reports have been prepared in
accordance with GAAP, applied on a consistent basis (except as may be
indicated therein or in the notes thereto and except with respect to
unaudited statements as permitted by Form 10-Q of the SEC) and fairly
present the financial position of Citation as of the dates thereof and the
results of its operations and cash flows for the periods then ended,
subject, in the case of the unaudited interim financial statements, to
normal, recurring audit adjustments.
4.5 NO ADVERSE CHANGE. Since October 1, 1995, except as disclosed in the SEC
Reports, there has not been any material adverse change in the condition,
financial or otherwise, of Citation or the Sub (other than changes in the
ordinary course of business, none of which individually or in the
aggregate has been materially adverse), and to Citation's and the Sub's
knowledge, there exists no event, condition or other circumstance (other
than possible law or regulation changes and economic conditions affecting
their businesses and similar businesses generally) which immediately or,
insofar as reasonably can be foreseen, with a lapse of time, will
materially adversely affect their respective businesses.
4.6 JUDGMENTS AND DECREES. Neither Citation nor the Sub is subject to any
order, judgment or decree which would prevent the consummation of any of
the transactions contemplated hereunder or compliance by Citation and the
Sub with the terms, conditions and provisions hereof.
4.7 LITIGATION AND ADMINISTRATIVE PROCEEDINGS. Except as set forth in the SEC
Reports, (i) there are no actions, suits or proceedings which have been
served on Citation or the Sub or, to the knowledge of Citation and the
Sub, threatened against Citation or the Sub, at law or in equity, which
could reasonably be expected to materially and adversely affect Citation
or the Sub, by or before any federal, state or municipal court or any
other governmental department, commission, board, bureau, agency or
instrumentality, and (ii) to the knowledge of Citation and the Sub,
neither Citation nor the Sub are subject to any material liability by
reason of a violation of any order, rule
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or regulation of any federal, state, municipal or other governmental
agency, department, commission, bureau, board or instrumentality to which
Citation or the Sub are subject.
4.8 DISCLOSURE. The statements of fact made by Citation and the Sub in this
Agreement are true and correct in all material respects as of the date of
this Agreement and do not omit any fact necessary to make the statements
contained therein, in light of the circumstances under which they were
made, not misleading in any material respect as of the date of this
Agreement. Citation and the Sub have no knowledge of any fact,
occurrence, event or condition that would make any representations or
warranties of the Company untrue in any material respect. Until the
Closing Date, Citation and the Sub will immediately advise the Company in
writing of any factor, occurrence or any pending or threatened occurrence
of which either of them obtains knowledge which, if existing and known at
any time prior to the Closing Date, would make any representation or
warranty of the Company untrue in any material respect.
4.9 SURVIVAL. The representations and warranties of Citation and the Sub set
forth in this Agreement shall be continuous, and shall survive the Closing
for a period of four (4) years.
ARTICLE V
CONDUCT OF BUSINESS PENDING CLOSING
From and after the date hereof until the Closing:
5.1 FULL ACCESS AND INVESTIGATION. Citation and its authorized
representatives shall have reasonable access upon reasonable notice during
normal business hours (or at other times reasonably determined by the
Company) to all properties, books, records, contracts and documents of the
Company in the manner reasonably determined by the Company, and the
Company shall furnish or cause to be furnished (including through the
Company's employees, authorized representatives, suppliers, customers and
independent providers of professional services) to Citation and its
authorized representatives all material information with respect to the
affairs and Business of the Company as Citation may reasonably request.
Citation agrees that any information furnished to or obtained by Citation
will be held in strict confidence in accordance with the terms of the
Confidentiality Agreement dated February 7, 1996 between Citation and the
Company.
5.2 CONTINUE BUSINESS IN REGULAR COURSE. The Company shall carry on the
Business substantially in the same manner as it is currently being
conducted and shall not make or institute any material change in its
method of purchase, sale, lease, management, marketing, accounting or
operations without the prior written consent of Citation. Unless
otherwise consented to in writing by Citation, or except as set forth on
SCHEDULE 5.2, the Company shall use reasonable efforts to:
(a) maintain all of the material assets presently being used in the
operation of the Business in good operating condition and repair subject
to ordinary wear and tear;
(b) maintain insurance upon the assets of the Business in amounts
comparable to that in effect on the date hereof;
(c) preserve its present business organization intact, and refrain
from firing or terminating any of its present officers or key employees,
except upon prior notice to Citation;
(d) maintain its books, accounts and records in the usual, regular
and ordinary manner, on a basis consistent with prior years, endeavor to
comply, in all material respects, with all laws applicable to it and to
the conduct of the Business, and perform all of its material obligations
without default;
(e) not sell or voluntarily dispose of any of the assets of the
Business, except for the sale of inventory and collection of accounts
receivable in the ordinary course of business or any
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other sale or disposition of assets in the ordinary course of business;
(f) not incur any accounts payable with respect to the operation of
the Business except in the ordinary course of business;
(g) not grant any increase in pay to employees nor increase any
salary, commission, bonus or management fee to any employee, nor pay any
bonus or institute any bonus or pension or profit-sharing plan or program,
other than in the ordinary course of business;
(h) not enter into any contract or commitment or engage in any
transaction which is not in the ordinary course of business, nor permit
any material change in the character of the Business;
(i) prevent the occurrence of any event which would result in any of
its representations and warranties contained in this Agreement not being
true and correct;
(j) keep its Business intact and preserve its relationship with
suppliers, customers and others with whom the Company has business
relations;
(k) not amend or propose to amend its Restated Articles of
Incorporation or Bylaws except as required by law;
(l) not issue any additional stock options, stock appreciation
rights or similar rights;
(m) not remove any inventory or equipment from the Real Estate,
except for the sale of inventory and equipment in the ordinary course of
business; and
(n) not pay or declare any distributions to shareholders as such
after December 31, 1995, except for a dividend distribution of $91,000
paid in March 1996.
5.3 CONSENTS OF CITATION. No consent, recommendation or advice given by
Citation to the Company pursuant to this Section 5 regarding the conduct
of the Business pending the Closing shall constitute an understanding,
commitment, representation or undertaking of Citation or give rise to any
obligation or liability of Citation or constitute a waiver of any
warranty, representation, covenant or agreement contained herein, except
as may be subsequently expressly set forth in writing and signed by the
parties hereto.
5.4 REGISTRATION STATEMENT. As promptly as practicable after the execution
of this Agreement, Citation shall prepare and file such registration
statement and indenture (the "Registration Statement") as shall be
necessary to register under the 1933 Act and to qualify under the
Indenture Act the rights associated with the Contingent Payments (the
"Contingent Payments Rights") in accordance with this Agreement. The
Company shall promptly prepare and/or furnish to Citation all information
concerning the business, financial condition and affairs of the Company
that may be required or reasonably requested by Citation in connection
with the preparation or filing of the Registration Statement, including
without limitation the Company's proxy statement to be delivered to the
Company Stockholders and contained in the Registration Statement (the
"Proxy Statement"), and financial statements, financial statement
schedules and auditor's consents required to be included therein or filed
therewith, and shall otherwise cooperate and cause its representatives to
cooperate with Citation in the preparation and filing of the Registration
Statement. The parties shall use their best efforts to cause the
Registration Statement to become effective as soon as practicable and to
distribute copies of Citation's prospectus and the Company's Proxy
Statement contained in such Registration Statement (the "Proxy Statement-
Prospectus") to the Company Stockholders. After the execution of this
Agreement and before the effectiveness of the Registration Statement, and
thereafter until the Closing Date, The Company shall promptly advise
Citation of any facts that should be set forth in an amendment or
supplement
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to the Proxy Statement-Prospectus or the Registration Statement, and each
party shall take all actions that may be necessary to keep the
Registration Statement and the Proxy Statement-Prospectus current and
effective until the Closing Date.
5.5 COMPANY STOCKHOLDER APPROVAL. As promptly as practicable after the
Registration Statement becomes effective and in accordance with applicable
law, the Company will duly hold a meeting of its Stockholders (the
"Stockholders Meeting") for the purpose of voting on the Merger. Unless
the board of directors of the Company in its good faith judgment
determines that it is otherwise required by law or its fiduciary duties,
the Company shall recommend the Merger to the Stockholders for approval.
Except with the prior written consent of Citation, the Company shall not
distribute any materials to the Stockholders in connection with the
Stockholders Meeting other than the Proxy Statement-Prospectus and related
form of proxy.
5.6 REPRESENTATIONS OF THE COMPANY AS TO THE REGISTRATION STATEMENT. The
Company warrants and represents to Citation and the Sub and covenants with
Citation and the Sub that, at the time the Registration Statement shall
become effective and at all times subsequent to effectiveness up to and
including the Closing Date, the Registration Statement and all amendments
or supplements thereto, with respect to the information therein furnished
by the Company or its representatives, (a) will comply in all material
respects with the applicable provisions of the 1933 Act, the 1934 Act and
the respective rules and regulations thereunder, and (b) will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
contained therein not misleading.
5.7 CITATION'S AND SUB'S REPRESENTATIONS AS TO REGISTRATION STATEMENT.
Citation and the Sub, jointly and severally, warrant and represent to the
Company and covenant with the Company that, at the time the Registration
Statement shall become effective and at all times subsequent to
effectiveness up to and including the Closing Date, the Registration
Statement and all amendments or supplements thereto, with respect to the
information therein furnished by Citation, the Sub or their
representatives, (a) will comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act and the respective
rules and regulations thereunder, and (b) will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein
not misleading.
5.8 STATE SECURITIES FILINGS. Citation shall undertake to qualify the
Contingent Payments Rights under applicable state securities laws and in
connection therewith take all such action as it may do without
unreasonable effort or expense. The Company shall cooperate with Citation
and furnish all information that may be required or reasonably requested
by Citation in connection therewith.
ARTICLE VI
TITLE INSURANCE; SURVEYS
6.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings specified:
(a) PERMITTED LIENS. "Permitted Liens" shall mean those Liens which
are expressly noted as Permitted Liens on SCHEDULE 6.1 hereto.
(b) REAL ESTATE. "Real Estate" shall mean those parcels of Real
Estate leased or owned by the Company, which are listed and described on
SCHEDULE 3.9 hereto.
(c) SURVEY. "Survey" shall mean a certified survey map prepared by
a registered land surveyor jointly selected by the Company and Citation
which shall be sufficient to enable the Title Company to eliminate all
survey exceptions (except such encroachments which are not material)
relating to the surveyed real property and shall include those matters
required to be included on a land survey in accordance with the minimum
standards and detail requirements for land title surveys as jointly
established and adopted by the American Land Title Association and the
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American Congress of Surveying and Mapping according to the 1992 Standards
for an Urban Survey.
(d) TITLE COMMITMENTS. "Title Commitments" shall mean binding
commitments issued by the Title Company for the issuance of an owners form
of title insurance policies, insuring the title in the relevant Real
Estate in accordance with the terms of this Agreement, subject only to
Permitted Liens.
(e) TITLE COMPANY. "Title Company" shall mean Chicago Title
Insurance Company or such other title insurance company which may be
jointly selected by the Company and Citation.
6.2 DELIVERIES PRIOR TO CLOSING. At least fourteen (14) calendar days prior
to the Closing Date, the Company shall: (a) cause the Title Company to
deliver to Citation the Title Commitments, dated as of a date which is no
earlier than twenty (20) calendar days prior to the Closing Date; and
(b) deliver to Citation Surveys of the Real Estate, each dated as of a
date which is no earlier than twenty (20) calendar days prior to the
Closing Date.
6.3 DELIVERIES AT CLOSING. On the Closing Date, the Company shall cause the
Title Company to issue and deliver to Citation executed title insurance
policies, dated as of the Closing Date, which title insurance policies
shall: (a) be in the amounts for each parcel of the Real Estate which are
set forth on SCHEDULE 6.3 hereto; and (b) insure title to the Real Estate
in accordance with the provisions set forth in this Agreement and in the
Title Commitments.
6.4 EXPENSES. The Company shall be responsible for the costs, expenses and
premiums for the Title Commitments, the Surveys and the title insurance
policies issued pursuant to the Title Commitments.
ARTICLE VII
HART-SCOTT-RODINO
As promptly as practicable after the date hereof, the parties shall each
prepare and file all documents with the Federal Trade Commission and the United
States Department of Justice that may be required to comply with the Hart-Scott-
Rodino Act, and shall promptly furnish all materials thereafter requested by any
of the regulatory agencies having jurisdiction over such filings, in connection
with the transactions contemplated hereby. Each party will take all reasonable
actions and will file and use reasonable efforts to have declared effective or
approved all documents and notifications with any governmental or regulatory
bodies, as may be necessary or may reasonably be requested under federal
antitrust laws for the consummation of the Merger pursuant to this Agreement.
The Closing shall only occur after any applicable waiting period under the Hart-
Scott-Rodino Act shall have expired or been terminated.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF CITATION AND SUB
Each and every obligation of Citation and the Sub under this Agreement to
be performed on or prior to the Closing Date shall be subject to the
fulfillment, on or prior to the Closing Date, of each of the following
conditions:
8.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and
warranties made by the Company in or pursuant to this Agreement or given
on its behalf hereunder shall be true and correct in all material respects
(i) on and as of the date hereof and (ii) on and as of the Closing Date
with the same effect as though such representations and warranties had
been made or given on and as of the Closing Date (except for
representations and warranties that expressly speak only as of a specific
date or time, which need only be true and correct as of such date and
time).
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8.2 OBLIGATIONS PERFORMED. The Company shall have performed and complied
with all agreements and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing in all
material respects.
8.3 CONSENTS AND APPROVALS. The consents and approvals of all persons or
entities, including governmental agencies, whose consent or approval is
required to consummate the transactions contemplated herein shall have
been obtained, including the expiration of any waiting period under the
Hart-Scott-Rodino Act. The parties hereto agree that the obtaining of
consents contemplated by the Contracts detailed on SCHEDULE 3.3 are not
required to consummate the transactions contemplated herein.
8.4 DELIVERY OF CLOSING DOCUMENTS. The Company shall have delivered to
Citation and the Sub each of the closing documents and instruments listed
and set forth in Section 10.1 hereof together with any additional
documents Citation may reasonably request to effect the transactions
contemplated herein.
8.5 NO LITIGATION OR GOVERNMENT INVESTIGATIONS. As of the Closing Date there
shall be no litigation, including without limitation any litigation
brought by any creditor of the Company, or government investigation, in
which an injunction or other order or decree has been obtained against the
transactions contemplated hereby.
8.6 NO MATERIAL CHANGE. At the Closing, the Business and the Company shall
not have been materially and adversely affected as the result of fire,
water, explosion, flood, act of God, accident or other casualty, labor
controversy, or any action by the United States or any other governmental
authority, whether or not covered by insurance. Further, as of the
Closing Date, and since December 31, 1995, the Company shall not have
suffered any material adverse change in general financial condition of the
Business, other than as disclosed in any of the Schedules to the
Agreement.
8.7 DISSENTING STOCKHOLDERS. Dissenting Stockholders shall not have
exercised and properly perfected dissenters' rights in compliance with the
Corporation Law with respect to Company Stock that would, if no
dissenters' rights had been exercised by any Dissenting Stockholders, be
convertible into the right to receive an aggregate of 10% of the Closing
Merger Payment.
8.8 COMPANY STOCKHOLDER APPROVAL. This Agreement must have been approved and
adopted by the affirmative vote of the holders of Company Stock
constituting at least a majority of all the votes entitled to be cast on
the Agreement.
8.9 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the 1933 Act, no stop order suspending
its effectiveness shall be in effect, and no stop order proceeding with
respect thereto shall be pending.
8.10 BLUE SKY QUALIFICATION. The Contingent Payments Rights shall have been
qualified under all applicable state securities laws without unreasonable
effort or expense.
ARTICLE IX
CONDITIONS TO COMPANY'S OBLIGATIONS
The obligation upon the Company to consummate the transactions
contemplated herein shall be subject to the fulfillment on or prior to the
Closing Date of the following additional conditions:
9.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and
warranties made by Citation and the Sub in or pursuant to this Agreement
or given on behalf of each of Citation and the Sub hereunder shall be true
and correct in all material respects (i) on and as of the date hereof and
(ii) on and as of the Closing Date with the same effect as though such
representations and
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warranties had been made or given on and as of the Closing Date
(except for representations and warranties that expressly speak only as of
a specific date or time, which need only be true and correct as of such
date and time).
9.2 OBLIGATIONS PERFORMED. Each of Citation and the Sub shall have performed
and complied with all of the agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the
Closing in all material respects.
9.3 DELIVERY OF CLOSING DOCUMENTS. Citation and the Sub shall have delivered
to the Company each of the closing documents and instruments listed in
Section 10.2 hereof together with any additional documents which the
Company may reasonably request to effect the transactions contemplated
herein.
9.4 COMPANY STOCKHOLDER APPROVAL. This Agreement must have been approved and
adopted by the affirmative vote of the holders of Company Stock
constituting at least a majority of all the votes entitled to be cast on
the Agreement.
9.5 CONSENTS AND APPROVALS. The consents and approvals of all persons or
entities, including governmental agencies, whose consent or approval is
required to consummate the transactions contemplated herein shall have
been obtained, including the expiration of any waiting period under the
Hart-Scott-Rodino Act.
9.6 NO LITIGATION OR GOVERNMENT INVESTIGATIONS. As of the Closing Date,
there shall be no litigation, including without limitation any litigation
brought by any creditor of the Sub or Citation, or government
investigation, in which an injunction or other order or decree has been
obtained against the transactions contemplated hereby.
9.7 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective under the 1933 Act, no stop order suspending
its effectiveness shall be in effect, and no stop order proceeding with
respect thereto shall be pending.
9.8 BLUE SKY QUALIFICATION. The Contingent Payments Rights shall have been
qualified under all applicable state securities laws without unreasonable
effort or expense.
9.9 OPINION OF FINANCIAL ADVISOR. The opinion of Robert W. Baird & Co.
Incorporated received by the Company's Board of Directors in connection
with their consideration of the Merger, to the effect that the
consideration to be received in the Merger by the Closing Stockholders is
fair to the Closing Stockholders from a financial point of view, shall not
have been withdrawn at the date of the Stockholders Meeting.
9.10 NO MATERIAL CHANGE. At the Closing, Citation and the Sub shall not have
been materially and adversely affected as a result of fire, water,
explosion, flood, act of God, accident or other casualty, labor
controversy, or any action by the United States or any other governmental
authority, whether or not covered by insurance. Further, as of the
Closing Date, and since October 1, 1995, Citation and the Sub shall not
have suffered any material adverse change in their respective general
financial conditions.
ARTICLE X
DELIVERIES AT CLOSING
10.1 DELIVERIES BY THE COMPANY AT CLOSING. At the Closing, the Company shall
deliver or cause to be delivered to Citation and the Sub the following
executed instruments and agreements:
(a) CERTIFICATE OF RESOLUTIONS OF BOARD. Resolutions of the Board
of Directors and shareholders of the Company, certified by the Secretary
of the Company, authorizing this
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Agreement and the transactions contemplated herein;
(b) CERTIFICATE OF THE COMPANY. A certificate of the Chairman or
President of the Company dated the Closing Date certifying (i) the
fulfillment of the conditions specified in Article VIII hereof, and
(ii) all warranties and representations of the Company contained in this
Agreement are true and correct in all material respects to the best of his
knowledge and belief after due inquiry at and as of the Closing Date as
though such warranties and representations were made at and as of such
time (except for representations and warranties that expressly speak only
as of a specific date or time);
(c) ARTICLES OF MERGER. The Company shall execute and deliver the
Articles of Merger in the form attached hereto as SCHEDULE 10.1(e);
(d) CERTIFICATE OF INCUMBENCY. A Certificate of Incumbency
evidencing the authority of each of the individuals executing on behalf of
the Company this Agreement and any other documents delivered in connection
herewith;
(e) OPINION OF COMPANY COUNSEL. An opinion of legal counsel for
the Company dated the Closing Date in the form of SCHEDULE 10.1(g); and
(f) CONTINGENT PAYMENTS LIST. At the Closing, the Company shall
have delivered a list (the "Contingent Payments List") of the Closing
Stockholders setting forth for each Closing Stockholder the percentage
("Contingent Payments Percentages") of Contingent Payments (less expenses
paid to the Stockholders Agents as provided in Section 1.12(a)), if any,
that each will receive, based on their pro rata ownership of the Closing
Stock.
10.2 DELIVERIES BY CITATION AND THE SUB AT CLOSING. At the Closing, Citation
and the Sub will execute and deliver, or cause to be executed and
delivered, to the Company the following:
(a) CASH. An amount equal to the Closing Merger Payment by bank
wire transfer in immediately available funds to the Paying Agent for
delivery to the Closing Stockholders.
(b) ARTICLES OF MERGER. The Sub shall execute and deliver the
Articles of Merger in the form attached hereto as SCHEDULE 10.1(e).
(c) CERTIFICATES OF INCUMBENCY. Certificates of Incumbency
evidencing the authority of each of the individuals executing on behalf of
each of the Sub and Citation this Agreement, the Mitchell Employment
Agreement and the Esenberg Employment Agreement, and any other documents
delivered in connection herewith;
(d) CERTIFICATES OF RESOLUTIONS OF BOARD. Resolutions of the Board
of Directors of each of Citation and the Sub, and of the sole shareholder
of the Sub, certified by the respective Secretaries of Citation and the
Sub, authorizing this Agreement and the transactions contemplated herein;
(e) CHAIRMAN'S CERTIFICATE. A certificate of the Chairman of each
of Citation and the Sub dated the Closing Date certifying (i) the
fulfillment of the conditions specified in Article IX hereof, and (ii) all
representations and warranties of Citation and the Sub contained in this
Agreement are true and correct in all material respects to the best of
their knowledge and belief after due inquiry at and as of the Closing Date
as though such warranties and representations were made at and as of such
time (except for representations and warranties that expressly speak only
as of a specific date or time);
(f) CITATION GUARANTY. Citation will execute and deliver the
guaranty attached hereto as Schedule 10.2(f) with respect to the Esenberg
Employment Agreement;
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(g) OPINION OF COUNSEL FOR CITATION AND SUB. An opinion of legal
counsel for Citation and the Sub dated the Closing Date in the form of
SCHEDULE 10.2(h).
ARTICLE XI
INDEMNIFICATION
11.1 INDEMNIFICATION. The Company hereby indemnifies and agrees to hold the
Surviving Corporation and Citation and/or the respective directors,
officers and/or agents of the Surviving Corporation and Citation and/or
their respective successors and assigns harmless from the following (for
purposes of this Article XI, the Surviving Corporation and Citation shall
be collectively and/or interchangeably referred to as "Citation"):
(a) MISREPRESENTATION, NONFULFILLMENT OF AGREEMENT. Any liability,
loss, cost, expense, damage, claim or deficiency resulting from any
misrepresentation set forth herein, breach of any warranty set forth
herein or any breach, nonfulfillment of, or failure to perform any
covenant, duty or obligation set forth herein on the part of the Company;
(b) TAX LIABILITIES. Any liability, loss, cost or expense related
to delinquent or underpaid taxes, including any interest and penalties
thereon, which relate to fiscal year 1995 and prior years and not included
as a liability on the December 31, 1995 Balance Sheet;
(c) ACTIONS OR PROCEEDINGS. Any liability, loss, cost or expense
incurred after the Effective Time by the Company or Citation that are
related to or arise out of any administrative, civil or criminal action or
proceedings relating to any securities law matters, including but not
limited to any inquiry or investigation, whether formal or informal, with
respect to any conduct by the Company relating thereto;
(d) STOCK RELATED LIABILITIES. Any liability, loss, cost or
expense incurred after the Effective Time by the Company or Citation that
are related to or arise out of a claim of stock ownership (and/or options
or other rights to purchase the Company's capital stock) in the Company by
persons to the extent not recognized by the Company as of the Effective
Time as being entitled to a portion of the consideration to be paid by
Citation described in Section 1.9; and
(e) ATTENDING COSTS AND EXPENSES. All liabilities, claims,
actions, suits, proceedings, demands, assessments, judgments and costs
incident to and reasonably incurred by Citation on account of any of the
foregoing, including, without limitation, reasonable attorney's fees and
other expenses of investigation or litigation.
11.2 LIMITS OF INDEMNIFICATION. The liability under Section 11.1 of this
Agreement shall:
(a) not arise with respect to a single indemnifiable course of
conduct, related set of circumstances, occurrence or event unless the
damages suffered by Citation arising therefrom exceed Ten Thousand and
00/100 Dollars ($10,000.00) (a "Company Covered Breach"); and
(b) not arise with respect to a Company Covered Breach unless, and
then only to the extent that, the cumulative damages suffered by Citation
for said Company Covered Breach and all Company Covered Breaches relating
to similar matters covered by a reserve, if any, which the Company has
established specifically for such matters in the books and records of the
Company as of December 31, 1995, exceed the amount of such specific
reserve. To the extent the liability for such a Company Covered Breach is
not covered by any specific reserve, or to the extent the aggregate of all
such liabilities has exceeded the relevant reserve, the liability, or such
portion thereof, as the case may be, shall be referred to as a "Company
Indemnifiable Breach"; and
(c) be recoverable only if and to the extent that the cumulative
damages suffered by
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Citation for all Company Indemnifiable Breaches exceeds Seven Hundred
Fifty Thousand and 00/100 Dollars ($750,000.00); provided, however, that
Indemnifiable Breaches relating to claims arising pursuant to
Sections 11.1(c) and 11.1(d) shall be recoverable without regard to this
limitation; and
(d) Citation shall not be entitled to more than one recovery for any
single loss, damage, cost, expense, liability, obligation or claim even
though such may have resulted from the breach or inaccuracy of more than
one of the representations and warranties and agreements made by the
Company in or pursuant to this Agreement;
(e) Citation shall not bring a claim or be entitled to
indemnification with respect to any facts or circumstances resulting in a
breach of any representation, warranty, covenant or agreement of the
Company of which Citation had knowledge on or before the Closing Date; and
(f) The cumulative liability under Section 11.1 of this Agreement
shall be limited in the aggregate to $10,000,000.00.
11.3 METHOD OF ASSERTING CLAIMS AGAINST THE COMPANY. All claims for
indemnification under this Article XI made by Citation shall be asserted
and resolved as follows:
(a) In the event that any claim or demand for which the Company
would be liable to Citation hereunder is asserted against or sought to be
collected from Citation by a third party, Citation shall promptly notify
the Stockholders Agents of such claim or demand, specifying the nature of
such claim or demand and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final
amount of such claim or demand) (the "Claim Notice"). The Stockholders
Agents shall have 30 calendar days from receipt of the Claim Notice (the
"Notice Period") to notify Citation:
(i) whether or not the Stockholders Agents dispute liability to the
third party or to Citation hereunder with respect to such claim
or demand and
(ii) whether or not they desire, at their sole cost and expense, to
defend Citation against such claim or demand. In the event
that the Stockholders Agents notify Citation within the Notice
Period that the Stockholders Agents desire to defend Citation
against such claim or demand, except as hereinafter provided,
the Stockholders Agents shall have the right to defend Citation
by appropriate proceedings, which proceedings shall be promptly
settled or prosecuted by them to a final conclusion in such a
manner as to avoid any risk of Citation becoming subject to
liability for any other matter. If Citation desires to
participate in, but not control, any such defense or settlement,
it may do so at its sole cost and expense. If the
Stockholders Agents elect not to defend Citation against such
claim or demand, whether by not giving Citation timely notice as
provided above or otherwise, then the amount of any such claim
or demand, or, if the same be contested by the Stockholders
Agents or by Citation (but Citation shall have no obligation to
contest any such claim or demand), then that portion thereof as
to which such defense is unsuccessful shall be conclusively
deemed to be a liability of the Stockholders Agents hereunder,
provided Citation is otherwise entitled to indemnification with
respect to such claim or demand under Section 11.1 hereof.
(b) In the event Citation should have a claim against the Company
hereunder which does not involve a claim or demand being asserted against
or sought to be collected from it by a third party, Citation shall
promptly send a Claim Notice with respect to such claim to the
Stockholders Agents. If the Stockholders Agents do not notify Citation
within a 30 day Notice Period that the Stockholders Agents dispute such
claim, it shall be conclusively deemed a liability of the Company
hereunder.
A-36
<PAGE>
(c) Nothing herein shall be deemed to prevent Citation from making a
claim hereunder for potential or contingent claims or demands provided the
Claim Notice sets forth the specific basis for any such potential or
contingent claim or demand, to the extent then feasible and Citation has
reasonable grounds to believe that such a claim or demand may be made.
11.4 PAYMENT OF CLAIMS. Payment of claims for which Citation has established
that it is entitled to indemnification hereunder shall be made solely by a
set-off by Citation against the amount owed to the Closing Stockholders
for the Final Contingent Payments Payment.
11.5 INDEMNIFIED CLAIMS BY CITATION. Citation does hereby indemnify and agree
to hold the Closing Stockholders and/or their agents and/or their
respective successors and assigns and the directors, officers and agents
of the Company harmless from the following:
(a) MISREPRESENTATION, NONFULFILLMENT OF AGREEMENT. Any liability,
loss, cost, expense, damage, claim or deficiency resulting from any
misrepresentation set forth herein, breach of any warranty set forth
herein or any breach, nonfulfillment of, or failure to perform any
covenant, duty or obligation set forth herein on the part of the Sub or
Citation;
(b) LIABILITIES OF CITATION. Any liability, loss, cost, damage or
expense arising in connection with or resulting from the operation of the
Business on or after the Closing Date; and
(c) ATTENDING COSTS AND EXPENSES. All liabilities, claims,
actions, suits, proceedings, demands, assessments, judgments and costs
incident to and reasonably incurred by the Closing Stockholders, their
agents and their respective successors and assigns and the directors,
officers and agents of the Company on account of any of the foregoing,
including, without limitation, reasonable attorney's fees and other
expenses of investigation or litigation.
11.6 METHOD OF ASSERTING CLAIM AGAINST CITATION. All claims for
indemnification under this Article XI made against Citation shall be
asserted and resolved in the manner set out for asserting and resolving
claims made against the Company under Section 11.3, except that Citation
will serve as its own agent. In the event that Citation is required to
make any payment under this Article XI, Citation shall pay the indemnitee
entitled thereto such amount within ten (10) days after the determination
of such amount in immediately available funds.
11.7 EXCLUSIVITY. The rights of indemnity provided by this Article XI of this
Agreement shall be exclusive of all other rights of indemnity or
contribution, whether created by law or otherwise, either before or after
the Effective Time, relating in any way to the subject matter of this
Agreement.
11.8 DEFINITION OF LOSS. For the purposes of this Article XI, any liability,
loss, cost, expense, damage, claim or deficiency for which any person is
liable hereunder shall be calculated without regard to any resulting tax
benefits.
11.9 INSURANCE. Prior to asserting any claim for indemnification with respect
to any liability, loss, cost, expense, damage, claim or deficiency under
this Article XI, the indemnitee shall exhaust all remedies with respect to
such liability, loss, cost, expenses, damage, claim or deficiency against
all collateral sources, including, but not limited to, all applicable
insurance policies which may be maintained or available to the indemnitee
or any affiliate thereof. In the event that any collateral source,
including, without limitation, any insurance policies maintained by or
available to the indemnitee or affiliates, covers such liability, loss,
cost, expense, damage, claim or deficiency, then such liability, loss,
cost, expense, damage, claim or deficiency shall be limited to the amounts
in excess of the amounts collected by the indemnitee with respect thereto.
A-37
<PAGE>
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated at any time before the
Effective Time, whether before or after approval by the stockholders of
the Company of matters presented to them in connection with the Merger,
(a) by mutual consent of Citation and the Company;
(b) by Citation if any of the conditions set forth in Article VIII
of this Agreement shall not have been fulfilled on or before August 31,
1996;
(c) by the Company if any of the conditions set forth in Article IX
of this Agreement shall not have been fulfilled on or before August 31,
1996;
(d) by the Company pursuant to Section 2.2 of this Agreement; or
(e) by the Company or Citation if the Closing has not occurred on or
before September 30, 1996.
12.2 EFFECT OF TERMINATION. If either the Company or Citation terminates this
Agreement as provided in the foregoing Section, this Agreement will
forthwith become void, and there will be no liability or obligation on the
part of Citation, the Sub or the Company or their officers or directors
except as set forth in Section 13.5 (relating to expenses), Section 13.6
(relating to brokers) and in Section 13.13 (relating to publicity), except
to the extent that such termination or any purported termination results
from the willful breach by a party of any of its representations,
warranties or agreements in this Agreement, whereupon the nonbreaching
party shall be entitled to equitable relief, including injunctive relief
and specific performance, as well as all other remedies available under
Article XI of this Agreement.
12.3 AMENDMENT. This Agreement may be amended by the parties, by action
taken by their Boards of Directors, at any time before or after any
required approval of matters presented in connection with the Merger by
the Stockholders of the Company but, after any such approval, no amendment
may be made that materially adversely affects the Closing Stockholders
without such further approval of the Stockholders. This Agreement may
not be amended except by an instrument signed on behalf of each of the
parties.
12.4 EXTENSION; WAIVER. At any time before the Effective Time, the parties,
by action taken by their Boards of Directors, may, to the extent legally
allowed, extend the time for the performance of any of the obligations or
other acts of the other parties, waive any inaccuracies in the
representations and warranties contained in this Agreement or in any
document delivered pursuant to it and waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver will be valid only if
set forth in an instrument signed on behalf of such party.
12.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A termination
or amendment of this Agreement or an extension or waiver pursuant to any
of the foregoing Sections of this Article will, in order to be effective,
require, in the case of Citation, the Sub or the Company, action by its
Board of Directors or an authorized committee of the Board or the duly
authorized designee of its Board of Directors.
ARTICLE XIII
MISCELLANEOUS
13.1 NOTICES. All communications or notices required or permitted by this
Agreement shall be in writing
A-38
<PAGE>
and shall be deemed to have been given at the earlier of the date when
actually delivered to an individual party or to an officer of a corporate
party by personal delivery or telephonic facsimile transmission or when
deposited in the United States mail, certified or registered mail, postage
prepaid, return receipt requested, and addressed as follows, unless and
until any of such parties notifies the others in accordance with this
Section 13.1 of a change of address:
If to Citation
or the Sub: Citation Corporation
Attention: T. Morris Hackney
Suite 204
2 Office Park Circle
Birmingham, Alabama 35223
Fax No: 205-870-8211
with a copy to:
Ritchie & Rediker, L.L.C.
Attention: Thomas A. Ritchie
312 North 23rd Street
Birmingham, Alabama 35203
Fax No. 205-324-7382
If to the Company: Interstate Forging Industries, Inc.
Attention: Franklyn Esenberg
4051 N. 27th Street
Milwaukee, Wisconsin 53216-1883
Fax No.: 414-444-7300
with a copy to:
Quarles & Brady
Attention: Patrick M. Ryan
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4497
Fax No.: 414-277-5237
If to the Stockholders
Agents: Franklyn Esenberg
c/o Interstate Forging Industries, Inc.
4051 N. 27th Street
Milwaukee, Wisconsin 53216-1883
Fax No.: 414-444-7300
with a copy to:
James Mitchell
c/o Interstate Forging Industries, Inc.
4051 N. 27th Street
Milwaukee, Wisconsin 53216-1883
Fax No.: 414-444-7300
with a copy to:
David Lauer
c/o Interstate Forging Industries, Inc.
A-39
<PAGE>
4051 N. 27th Street
Milwaukee, Wisconsin 53216-1883
Fax No.: 414-444-7300
with a copy to:
Quarles & Brady
Attention: Patrick M. Ryan
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4497
Fax No.: 414-277-5237
13.2 BINDING AGREEMENT; ASSIGNMENT. This Agreement and the right of the
parties hereunder shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, assigns, heirs, estates
and legal representatives. Neither this Agreement nor any rights or
liabilities may be assigned by the Company without the written consent of
Citation. Neither Citation nor Sub may assign any of their rights or
obligations under this Agreement without the prior written consent of:
(a) the Company prior to the Effective Time; and (b) the Stockholders
Agents after the Effective Time.
13.3 ENTIRE AGREEMENT. This Agreement and the Schedules attached hereto, and
the documents delivered pursuant hereto, constitute the entire Agreement
and understanding among the parties hereto and supersede and revoke any
prior agreement or understanding relating to the subject matter of this
Agreement.
13.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
13.5 EXPENSES. Whether or not the transaction contemplated herein is
consummated, the parties hereto will each pay their own attorneys and
accountants fees, expenses and disbursements in connection with the
negotiation and preparation of this Agreement and Schedules and all other
costs and expenses incurred in performing and complying with all
conditions to be performed under this Agreement. If the Merger is
consummated, such costs and expenses incurred by the Company as determined
below, will be deducted from the amount otherwise payable at the Closing
in respect to the Company Stock Price. Such costs and expenses (the
"Company Transaction Costs") of the Company shall include only costs and
expenses directly associated with the transactions contemplated hereby and
shall include, without limitation:
(i) the Company's attorneys and accountants fees related to the
transactions described herein (including, without limitation,
fees associated with the preparation and filing of the
Registration Statement including filing and qualification under
the Indenture Act and preparation of filings required by the
Hart-Scott-Rodino Act),
(ii) the fees and expenses of the Paying Agent,
(iii) the fees and expenses described in Article VI of this Agreement,
(iv) the fees and expenses of any investment banking advisors, and
(v) distributions to dissenting shareholders in excess of the
Company Stock Price or prohibited shareholder distributions;
whether such expenses and fees have been paid by the Company before or
after the Effective Time. Within five business days prior to the
Effective Time, the Company will present to Citation
A-40
<PAGE>
a list (the "Expense List") of both those Company Transaction Costs that
have been incurred and paid as of such date and that to the best
knowledge of the Company are expected to be incurred and payable relating
to the Merger. All costs and expenses incurred by the Company in
connection with the Merger which exceed the total amount described on the
Expense List will become subject to the right of set-off by Citation
against the Final Contingent Payments Payment.
13.6 BROKERS. Each party shall indemnify and hold harmless the other party
against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby,
respectively. Specifically, Citation and the Sub shall hold the Company
harmless from any such claim asserted by Craft and Associates related to
an agreement between such broker and Citation.
13.7 FURTHER ASSURANCES. Upon reasonable request from time to time the
parties hereto will deliver and/or execute such further instruments as are
necessary or appropriate to the consummation of the transactions
contemplated by this Agreement.
13.8 CONSTRUCTION. Within this Agreement, the singular shall include the
plural and the plural shall include the singular, and any gender shall
include the other genders, all as the meaning in the context of this
Agreement shall require.
13.9 INCORPORATION. All Schedules attached to this Agreement are by this
reference incorporated herein and made an essential part hereof.
13.10 COOPERATION. The parties hereto will cooperate fully with each other and
their respective counsel and accountants in connection with all steps to
be taken as part of their obligations under this Agreement.
13.11 CAPTIONS. The captions used in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
13.12 GOVERNING LAW. This Agreement shall be governed and regulated and the
rights and liabilities of all parties hereto shall be construed pursuant
to the laws of the State of Wisconsin.
13.13 PUBLICITY. So long as this Agreement is in effect, neither the Company
nor Citation will, or will permit any of its subsidiaries to, issue or
cause the publication of any press release or other public announcement
with respect to the transactions contemplated by this Agreement without
the consent of the other party (which may not be unreasonably delayed or
withheld), except as may be required by law, in which case the parties
will consult with each other before such release or announcement.
IN WITNESS WHEREOF, the undersigned parties have entered into and executed
this Agreement to be effective as of the day and year first above written.
ATTEST: CITATION CORPORATION
/s/ Stanley B. Atkins By: /s/ T. Morris Hackney
- ---------------------------- ------------------------------------
T. MORRIS HACKNEY
Its Chairman
ATTEST: CITATION FORGING CORPORATION
/s/ Stanley B. Atkins By: /s/ T. Morris Hackney
- ---------------------------- ------------------------------------
T. MORRIS HACKNEY
Its Chairman
A-41
<PAGE>
ATTEST: INTERSTATE FORGING INDUSTRIES, INC.
/s/ Contance J. Janikowski By: /s/ Franklyn Esenberg
- ---------------------------- ------------------------------------
FRANKLYN ESENBERG
Its Chairman
SOLELY FOR THE PURPOSES OF
SECTION 2.1 OF THE AGREEMENT
/s/ Franklyn Esenberg
----------------------------------------
Franklyn Esenberg
/s/ James Mitchell
----------------------------------------
James Mitchell
/s/ David P. Lauer
----------------------------------------
David P. Lauer
A-42
<PAGE>
LIST OF SCHEDULES
Schedule 1.8 Example of Calculations
Schedule 1.9(c) Detail of Company Stock Options
Schedule 1.9(d)(I)-1 Interstate Restricted Stock Awards
Schedule 1.9(d)(I)-2 Form of Restricted Stock Agreement
Schedule 1.10(g) Company Business Plan
Schedule 1.15 Detail of Stock Appreciation Rights
Schedule 3.3 Effect of Agreement
Schedule 3.4 Stockholders
Schedule 3.5 Operation of Business
Schedule 3.7 Material Changes since December 31, 1995
Schedule 3.8 The Company's personal and real property leases
together with all amendments relating thereto (the
"Leases")
Schedule 3.9 Legal descriptions of real estate occupied by the
Company
Schedule 3.11 Contracts
Schedule 3.11.1 Disclosures of any mortgage, lien, lease, agreement,
contract, instrument, order, judgment or decree which
may materially affect the Agreement
Schedule 3.13 True and correct schedule of all policies of insurance
on which the Company is named as an insured party
Schedule 3.15 Any actions, suits or proceedings which have been
served on the Company
Schedule 3.17 Names, Trademarks, Trade Names, Licenses, etc.
Schedule 3.18 Employee Plans, Contracts and benefit arrangements
Schedule 3.19 List of all salaried employees and their salary rates,
a list of the rates of compensation for hourly
employees in the Business and amounts paid on account
of any incentive programs for the twelve month period
ended December 31, 1995
Schedule 3.20 Ordinary Course of Business
Schedule 3.23 Customers' Toolings and Dies
Schedule 3.25(a) Hazardous Materials
Schedule 3.27 Certain Tax Matters
Schedule 5.2 Continue Business in Regular Course
A-43
<PAGE>
Schedule 6.1 Permitted Liens
Schedule 6.3 Amounts of Title Insurance
Schedule 10.1(c) Employment Agreement between Company, Citation and
James Mitchell
Schedule 10.1(d) Employment Agreement between Company and Franklyn
Esenberg
Schedule 10.1(e) Articles of Merger
Schedule 10.1(g) Opinion of Quarles & Brady
Schedule 10.2(f) Citation Guaranty
Schedule 10.2(h) Opinion of Ritchie & Rediker
A-44
<PAGE>
ARTICLES OF MERGER
OF
CITATION FORGING CORPORATION
INTO
INTERSTATE FORGING INDUSTRIES, INC.
THESE ARTICLES OF MERGER are made as of this day of , 1995, by and
between CITATION FORGING CORPORATION, a Wisconsin corporation ("CFC"), and
INTERSTATE FORGING INDUSTRIES, INC., a Wisconsin corporation ("IFI").
ARTICLE I
PLAN OF MERGER
The Plan of Merger required by Sections 180.1101 and 180.1105 of the
Wisconsin Business Corporation Law is the Plan of Merger (the "Plan of
Merger") attached hereto as Schedule A and by reference made a apart hereof
with the same force and effect as if herein set forth in full. The Plan of
Merger has been approved by the shareholders of CFC and IFI in accordance
with Section 180.1103 of the Wisconsin Business Corporation Law.
ARTICLE II
EFFECTIVE TIME OF MERGER
As provided in the Plan of Merger, the Effective Time of the Merger shall
be upon filing these Articles of Merger with the Wisconsin Department of
Financial Institutions.
IN WITNESS WHEREOF, each of the parties hereto have caused these Articles
of Merger to be executed on its behalf on the date and year first above written.
CITATION FORGING CORPORATION
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Attest:
--------------------------------
Name:
---------------------------
Title:
--------------------------
INTERSTATE FORGING INDUSTRIES, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Attest:
--------------------------------
Name:
---------------------------
Title:
--------------------------
A-45
<PAGE>
The foregoing instrument was acknowledged before me this day of ,
1996, by and , and ,
respectively, of Citation Forging Corporation, a Wisconsin corporation, on
behalf of the corporation.
--------------------------------
--------------------------------
Notary Public, Milwaukee County
State of Wisconsin
My commission:
------------------
STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this day of ,
1996, by and , and ,
respectively, of Interstate Forging Industries, Inc., a Wisconsin corporation,
on behalf of the corporation.
--------------------------------
--------------------------------
Notary Public, Milwaukee County
State of Wisconsin
My commission:
------------------
This instrument was drafted
by and should be returned to:
John E. Dunn
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
A-46
<PAGE>
SCHEDULE A
PLAN OF MERGER
OF CITATION FORGING CORPORATION
INTO
INTERSTATE FORGING INDUSTRIES, INC.
THIS PLAN OF MERGER (the "Plan of Merger") is made as of this day of ,
1996, by and between CITATION FORGING CORPORATION, a Wisconsin corporation
("CFC"), and INTERSTATE FORGING INDUSTRIES, INC., a Wisconsin corporation
("IFI").
RECITALS
WHEREAS, IFI, CFC and Citation Corporation, a Delaware corporation
("Citation"), are parties to an Agreement and Plan of Merger, dated as of May
16, 1996 (the "Merger Agreement"), providing for, among other things, the merger
of CFC with and into IFI (the "Merger");
WHEREAS, the respective Boards of Directors of CFC and IFI have determined
that the Merger is advisable, fair and in the best interests of CFC and IFI and
their respective shareholders, and, by resolutions duly adopted, have approved
the Merger, the Merger Agreement, including this Plan of Merger, and the
transactions contemplated thereby;
WHEREAS, the shareholders of CFC and IFI, by resolutions duly adopted, have
approved the Merger, the Merger Agreement, including this Plan of Merger, and
the transactions contemplated thereby;
NOW, THEREFORE, in consideration of the Recitals and of the mutual
agreements and covenants set forth in this Plan of Merger and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, CFC and IFI hereby agree as follows:
ARTICLE I
CORPORATE EXISTENCE OF THE SURVIVING CORPORATION
As of the effective time of the Merger (the "Effective Time"), CFC will be
merger with and into IFI, which shall continue to be governed by the laws of the
State of Wisconsin, and the separate existence of CFC shall thereupon cease,
whereupon CFC and the Surviving Corporation shall be and become one single
corporation. The corporate identity, existence, purposes, powers, franchises,
privileges, assets, properties and rights of IFI (hereinafter sometimes referred
to as the "Surviving Corporation") shall continue unaffected and unimpaired by
the Merger and the corporate identity, existence, purposes, powers, franchises,
privileges, assets, properties and rights of CFC shall be merged into the
Surviving Corporation and the Surviving Corporation shall be fully vested
therewith.
ARTICLE II
ARTICLES OF INCORPORATION OF SURVIVING CORPORATION
The Articles of Incorporation of IFI as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until amended in accordance with law.
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<PAGE>
ARTICLE III
BYLAWS OF SURVIVING CORPORATION
The Bylaws of IFI as in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation until amended in accordance
with law.
ARTICLE IV
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
The duly qualified and acting directors and officers of CFC immediately
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation, to hold office as provided in the Bylaws of the Surviving
Corporation.
ARTICLE V
CONVERSION OF IFI STOCK
(a) On the terms and conditions set forth in the Merger Agreement, at the
Effective Time, by virtue of the Merger and without any action on the part of
the holder of any shares of capital stock or stock options:
(i) Each share of Common Stock of IFI outstanding at the Effective
Time will be converted into the right to receive, without interest thereon, an
amount in cash equal to $_____________. In addition, each share of Common Stock
of IFI which is issuable by IFI pursuant to option rights granted by IFI,
whether vested or unvested at the Effective Time, shall be converted into an
amount in cash equal to $____________ less the per share exercise price of the
related option (and less any required withholding taxes). The registered holders
of IFI Common Stock and the holders of IFI options shall herein be referred to
as the "Closing Stockholders."
(ii) Citation will deliver to the Closing Stockholders aggregate
additional cash consideration equal to five (5) times the amount by which (x)
the average annual net earnings of IFI before interest and income and franchise
taxes during the three year period from January 1, 1996 through December 31,
1998 exceeds (y) $9,500,000.00.
(b) All shares of IFI Common Stock that are owned directly or indirectly
by IFI as treasury stock, if any, will be cancelled, and no consideration will
be delivered in exchange for any such shares.
ARTICLE VI
CONVERSION OF CFC STOCK
On the terms and conditions set forth in the Merger Agreement, at the
Effective Time, by virtue of the Merger and without any action on the part of
the holders of any shares of capital stock, each issued and outstanding share of
the capital stock of CFC will be converted into and become one fully paid share
of Common Stock, $1.00 per value per share, of the Surviving Corporation.
A-48
<PAGE>
ARTICLE VII
EFFECT OF THE MERGER
(a) At the Effective Time, the effect of the Merger shall be as provided
in the Wisconsin Business Corporation Law, including the effects described in
Section (b) of this Article VII.
(b) At the Effective Time, the Surviving Corporation shall succeed to,
without other transfer, and shall possess and enjoy, all the rights, privileges,
assets, properties, powers and franchises both of a public and a private nature,
and be subject to all the restrictions, disabilities and duties of CFC and IFI,
and all the rights, privileges, assets, properties, powers and franchises of CFC
or IFI and all property, real, personal and mixed, tangible or intangible, and
all debts due to CFC or IFI on whatever account, shall be vested in the
Surviving Corporation; and all rights, privileges, assets, properties, powers
and franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of CFC or
IFI; and the title to or any interest in any real estate vested by deed or
otherwise in either CFC or IFI shall not revert or be in any way impaired by
reason of the Merger; provided, however, that all rights of creditors and liens
upon any property of either CFC or IFI shall be preserved unimpaired, and all
debts, liabilities and duties of CFC or IFI shall thenceforth attach to the
Surviving Corporation and may be enforced against the Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation.
ARTICLE VIII
EFFECTIVE TIME OF MERGER
The Effective Time of the Merger shall be upon filing Articles of Merger
with the Wisconsin Department of Financial Institutions.
ARTICLE IX
CONDITIONS AND TERMINATION
The conditions specified in Articles VIII and IX of the Merger Agreement
shall constitute conditions precedent to the obligations of CFC and IFI as
therein provided and if by reason of the provisions of Articles VIII or IX of
the Merger Agreement, or otherwise as provided in Article XII of the Merger
Agreement, either CFC or IFI is not obligated to consummate the Merger
contemplated by this Plan of Merger, then the party not obligated may terminate
this Plan of Merger prior to the Effective Time by action of its Board of
Directors, and thereupon this Plan of Merger shall be terminated without further
liability of either party in favor of the other except as provided in the Merger
Agreement.
IN WITNESS WHEREOF, each of the parties hereto have caused this Plan of
Merger to be executed on its behalf on the day and year first above written.
CITATION FORGING CORPORATION
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
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<PAGE>
Attest:
--------------------------------
Name:
---------------------------
Title:
--------------------------
INTERSTATE FORGING INDUSTRIES, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Attest:
--------------------------------
Name:
---------------------------
Title:
--------------------------
STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this day of ,
1996, by and , and ,
respectively, of Citation Forging Corporation, a Wisconsin corporation, on
behalf of the corporation.
--------------------------------
--------------------------------
Notary Public, Milwaukee County
State of Wisconsin
My commission:
------------------
STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
The foregoing instrument was acknowledged before me this day of ,
1996, by and , and ,
respectively, of Interstate Forging Industries, Inc., a Wisconsin corporation,
on behalf of the corporation.
--------------------------------
--------------------------------
Notary Public, Milwaukee County
State of Wisconsin
My commission:
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This instrument was drafted
by and should be returned to:
John E. Dunn
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, WI 53202
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APPENDIX B
SUBCHAPTER XIII OF
THE WISCONSIN BUSINESS CORPORATION LAW
DISSENTERS' RIGHTS
180.1301 DEFINITIONS. In ss. 180.1301 to 180.1331:
(1) "Beneficial shareholder" means a person who is a beneficial owner of
shares held by a nominee as the shareholder.
(1m) "Business combination" has the meaning given in s. 180.1130(3).
(2) "Corporation" means the issuer corporation or, if the corporate action
giving rise to dissenters' rights under s. 180.1302 is a merger or share
exchange that has been effectuated, the surviving domestic corporation or
foreign corporation of the merger or the acquiring domestic corporation or
foreign corporation of the share exchange.
(3) "Dissenter" means a shareholder or beneficial shareholder who is
entitled to dissent from corporate action under s. 180.1302 and who exercises
that right when and in the manner required by ss. 180.1320 to 180.1328.
(4) "Fair value", with respect to a dissenter's shares other than in a
business combination, means the value of the shares immediately before the
effectuation of the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. "Fair value", with respect to a dissenter's
shares in a business combination, means market value, as defined in
s. 180.1130(9)(a) 1 to 4.
(5) "Interest" means interest from the effectuation date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all of the circumstances.
(6) "Issuer corporation" means a domestic corporation that is the issuer
of the shares held by a dissenter before the corporate action.
180.1302 RIGHT TO DISSENT. (1) Except as provided in sub. (4) and
s. 180.1008(3), a shareholder or beneficial shareholder may dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the issuer corporation is a
party if any of the following applies:
1. Shareholder approval is required for the merger by s. 180.1103 or by
the articles of incorporation.
2. The issuer corporation is a subsidiary that is merged with its parent
under s. 180.1104.
(b) Consummation of a plan of share exchange if the issuer corporation's
shares will be acquired, and the shareholder or the shareholder holding shares
on behalf of the beneficial shareholder is entitled to vote on the plan.
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(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the issuer corporation other than in the usual and regular
course of business, including a sale in dissolution, but not including any of
the following:
1. A sale pursuant to court order.
2. A sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale.
(d) Except as provided in sub. (2), any other corporate action taken
pursuant to a shareholder vote to the extent that the articles of incorporation,
bylaws or a resolution of the board of directors provides that the voting or
nonvoting shareholder or beneficial shareholder may dissent and obtain payment
for his or her shares.
(2) Except as provided in sub. (4) and s. 180.1008(3), the articles of
incorporation may allow a shareholder or beneficial shareholder to dissent from
an amendment of the articles of incorporation and obtain payment of the fair
value of his or her shares if the amendment materially and adversely affects
rights in respect of a dissenter's shares because it does any of the following:
(a) Alters or abolishes a preferential right of the shares.
(b) Creates, alters or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
(c) Alters or abolishes a preemptive right of the holder of shares to
acquire shares or other securities.
(d) Excludes or limits the right of the shares to vote on any matter or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights.
(e) Reduces the number of shares owned by the shareholder or beneficial
shareholder to a fraction of a share if the fractional share so created is to be
acquired for cash under s. 180.0604.
(3) Notwithstanding sub. (1)(a) to (c), if the issuer corporation is a
statutory close corporation under ss. 180.1801 to 180.1837, a shareholder of the
statutory close corporation may dissent from a corporate action and obtain
payment of the fair value of his or her shares, to the extent permitted under
sub. (1)(d) or (2) or s. 180.1803, 180.1813(1)(d) or (2)(b), 180.1815(3) or
180.1829(1)(c).
(4) Except in a business combination or unless the articles of
incorporation provide otherwise, subs. (1) and (2) do not apply to the holders
of shares of any class or series if the shares of the class or series are
registered on a national securities exchange or quoted on the national
association of securities dealers, inc., automated quotations system on the
record date fixed to determine the shareholders entitled to notice of a
shareholders meeting at which shareholders are to vote on the proposed corporate
action.
(5) Except as provided in s. 180.1833, a shareholder or beneficial
shareholder entitled to dissent and obtain payment for his or her shares under
ss. 180.1301 to 180.1331 may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder, beneficial shareholder or issuer corporation.
180.1303 DISSENT BY SHAREHOLDERS AND BENEFICIAL SHAREHOLDERS. (1) A
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in his or her name only if the shareholder dissents with respect to
all shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he or she asserts
dissenters' rights. The rights of a shareholder who under this subsection
asserts dissenters' rights as to fewer than all of the
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shares registered in his or her name are determined as if the shares as to which
he or she dissents and his or her other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if the beneficial shareholder does all of the
following:
(a) Submits to the corporation the shareholder's written consent to the
dissent not later than the time that the beneficial shareholder asserts
dissenters' rights.
(b) Submits the consent under par. (a) with respect to all shares of which
he or she is the beneficial shareholder.
180.1320 NOTICE OF DISSENTERS' RIGHTS. (1) If proposed corporate action
creating dissenters' rights under s. 180.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders and
beneficial shareholders are or may be entitled to assert dissenters' rights
under ss. 180.1301 to 180.1331 and shall be accompanied by a copy of those
sections.
(2) If corporate action creating dissenters' rights under s. 180.1302 is
authorized without a vote of shareholders, the corporation shall notify, in
writing and in accordance with s. 180.0141, all shareholders entitled to assert
dissenters' rights that the action was authorized and send them the dissenters'
notice described in s. 180.1322.
180.1321 NOTICE OF INTENT TO DEMAND PAYMENT. (1) If proposed corporate
action creating dissenters' rights under s. 180.1302 is submitted to a vote at a
shareholders' meeting, a shareholder or beneficial shareholder who wishes to
assert dissenters' rights shall do all of the following:
(a) Deliver to the issuer corporation before the vote is taken written
notice that complies with s. 180.0141 of the shareholder's or beneficial
shareholder's intent to demand payment for his or her shares if the proposed
action is effectuated.
(b) Not vote his or her shares in favor of the proposed action.
(2) A shareholder or beneficial shareholder who fails to satisfy sub. (1)
is not entitled to payment for his or her shares under ss. 180.1301 to 180.1331.
180.1322 DISSENTERS' NOTICE. (1) If proposed corporate action creating
dissenters' rights under s. 180.1302 is authorized at a shareholders' meeting,
the corporation shall deliver a written dissenters' notice to all shareholders
and beneficial shareholders who satisfied s. 180.1321.
(2) The dissenters' notice shall be sent no later than 10 days after the
corporate action is authorized at a shareholders' meeting or without a vote of
shareholders, whichever is applicable. The dissenters' notice shall comply with
s. 180.0141 [which is set forth below] and shall include or have attached all of
the following:
(a) A statement indicating where the shareholder or beneficial shareholder
must send the payment demand and where and when certificates for certificated
shares must be deposited.
(b) For holders of uncertificated shares, an explanation of the extent to
which transfer of the shares will be restricted after the payment demand is
received.
(c) A form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and that requires the shareholder
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or beneficial shareholder asserting dissenters' rights to certify whether he or
she acquired beneficial ownership of the shares before that date.
(d) A date by which the corporation must receive the payment demand, which
may not be fewer than 30 days nor more than 60 days after the date on which the
dissenters' notice is delivered.
(e) A copy of ss. 180.1301 to 180.1331.
180.1323 DUTY TO DEMAND PAYMENT. (1) A shareholder or beneficial
shareholder who is sent a dissenters' notice described in s. 180.1322, or a
beneficial shareholder whose shares are held by a nominee who is sent a
dissenters' notice described in s. 180.1322, must demand payment in writing and
certify whether he or she acquired beneficial ownership of the shares before the
date specified in the dissenters' notice under s. 180.1322(2)(c). A shareholder
or beneficial shareholder with certificated shares must also deposit his or her
certificates in accordance with the terms of the notice.
(2) A shareholder or beneficial shareholder with certificated shares who
demands payment and deposits his or her share certificates under sub. (1)
retains all other rights of a shareholder or beneficial shareholder until these
rights are canceled or modified by the effectuation of the corporate action.
(3) A shareholder or beneficial shareholder with certificated or
uncertificated shares who does not demand payment by the date set in the
dissenters' notice, or a shareholder or beneficial shareholder with certificated
shares who does not deposit his or her share certificates where required and by
the date set in the dissenters' notice, is not entitled to payment for his or
her shares under ss. 180.1301 to 180.1331.
180.1324 RESTRICTIONS ON UNCERTIFICATED SHARES. (1) The issuer
corporation may restrict the transfer of uncertificated shares from the date
that the demand for payment for those shares is received until the corporate
action is effectuated or the restrictions released under s. 180.1326.
(2) The shareholder or beneficial shareholder who asserts dissenters'
rights as to uncertificated shares retains all of the rights of a shareholder or
beneficial shareholder, other than those restricted under sub. (1), until these
rights are canceled or modified by the effectuation of the corporate action.
180.1325 PAYMENT. (1) Except as provided in s. 180.1327, as soon as the
corporate action is effectuated or upon receipt of a payment demand, whichever
is later, the corporation shall pay each shareholder or beneficial shareholder
who has complied with s. 180.1323 the amount that the corporation estimates to
be the fair value of his or her shares, plus accrued interest.
(2) The payment shall be accompanied by all of the following:
(a) The corporation's latest available financial statements, audited and
including footnote disclosure if available, but including not less than a
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of payment, an income statement for that year, a statement of
changes in shareholders' equity for that year and the latest available interim
financial statements, if any.
(b) A statement of the corporation's estimate of the fair value of the
shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment under
s. 180.1328 if the dissenter is dissatisfied with the payment.
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(e) A copy of ss. 180.1301 to 180.1331.
180.1326 FAILURE TO TAKE ACTION. (1) If an issuer corporation does not
effectuate the corporate action within 60 days after the date set under
s. 180.1322 for demanding payment, the issuer corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the issuer corporation effectuates the corporate action, the
corporation shall deliver a new dissenters' notice under s. 180.1322 and repeat
the payment demand procedure.
180.1327 AFTER-ACQUIRED SHARES. (1) A corporation may elect to withhold
payment required by s. 180.1325 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date specified in the dissenters'
notice under s. 180.1322(2)(c) as the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action.
(2) To the extent that the corporation elects to withhold payment under
sub. (1) after effectuating the corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his or her demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated, and
a statement of the dissenter's right to demand payment under s. 180.1328 if the
dissenter is dissatisfied with the offer.
180.1328 PROCEDURE IF DISSENTER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may, in the manner provided in sub. (2), notify the corporation
of the dissenter's estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any payment
received under s. 180.1325, or reject the offer under s. 180.1327 and demand
payment of the fair value of his or her shares and interest due, if any of the
following applies:
(a) The dissenter believes that the amount paid under s. 180.1325 or
offered under s. 180.1327 is less than the fair value of his or her shares or
that the interest due is incorrectly calculated.
(b) The corporation fails to make payment under s. 180.1325 within 60 days
after the date set under s. 180.1322 for demanding payment.
(c) The issuer corporation, having failed to effectuate the corporate
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the date set
under s. 180.1322 for demanding payment.
(2) A dissenter waives his or her right to demand payment under this
section unless the dissenter notifies the corporation of his or her demand under
sub. (1) in writing within 30 days after the corporation made or offered payment
for his or her shares. The notice shall comply with s. 180.0141.
180.1330 COURT ACTION. (1) If a demand for payment under s. 180.1328
remains unsettled, the corporation shall bring a special proceeding within 60
days after receiving the payment demand under s. 180.1328 and petition the court
to determine the fair value of the shares and accrued interest. If the
corporation does not bring the special proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall bring the special proceeding in the circuit
court for the county where its principal office or, if none in this state, its
registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall bring the special proceeding
in the county in
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this state in which was located the registered office of the issuer corporation
that merged with or whose shares were acquired by the foreign corporation.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the special proceeding.
Each party to the special proceeding shall be served with a copy of the petition
as provided in s. 801.14.
(4) The jurisdiction of the court in which the special proceeding is
brought under sub. (2) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. An appraiser has the power described in the order
appointing him or her or in any amendment to the order. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the special proceeding is entitled to
judgment for any of the following:
(a) The amount, if any, by which the court finds the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation.
(b) The fair value, plus accrued interest, of his or her shares acquired
on or after the date specified in the dissenter's notice under
s. 180.1322(2)(c), for which the corporation elected to withhold payment under
s. 180.1327.
180.1331 COURT COSTS AND COUNSEL FEES. (1)(a) Notwithstanding ss. 814.01
to 814.04, the court in a special proceeding brought under s. 180.1330 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court and shall assess the costs against
the corporation, except as provided in par. (b).
(b) Notwithstanding ss. 814.01 and 814.04, the court may assess costs
against all or some of the dissenters, in amounts that the court finds to be
equitable, to the extent that the court finds the dissenters acted arbitrarily,
vexatiously or not in good faith in demanding payment under s. 180.1328.
(2) The parties shall bear their own expenses of the proceeding, except
that, notwithstanding ss. 814.01 to 814.04, the court may also assess the fees
and expenses of counsel and experts for the respective parties, in amounts that
the court finds to be equitable, as follows:
(a) Against the corporation and in favor of any dissenter if the court
finds that the corporation did not substantially comply with ss. 180.1320 to
180.1328.
(b) Against the corporation or against a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by this chapter.
(3) Notwithstanding ss. 814.01 to 814.04, if the court finds that the
services of counsel and experts for any dissenter were of substantial benefit to
other dissenters similarly situated, the court may award to these counsel and
experts reasonable fees to be paid out of the amounts awarded the dissenters who
were benefitted.
* * * * *
180.0141 NOTICE. (1) This section applies to notice that is required
under this chapter and that is made subject to this section by express reference
to this section.
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(2)(a) A person shall give notice in writing, except as provided in
par. (b).
(b) A person may give oral notice if oral notice is permitted by the
articles of incorporation or bylaws and not otherwise prohibited by this
chapter.
(3) Except as provided in s. 180.0721(4) or unless otherwise provided in
the articles of incorporation or bylaws, notice may be communicated in person,
by telephone, telegraph, teletype, facsimile or other form of wire or wireless
communication, or by mail or private carrier, and, if these forms of personal
notice are impracticable, notice may be communicated by a newspaper of general
circulation in the area where published, or by radio, television or other form
of public broadcast communication.
(4) Written notice to a domestic corporation or a foreign corporation
authorized to transact business in this state may be addressed to its registered
agent at its registered office or to the domestic corporation or foreign
corporation at its principal office. With respect to a foreign corporation that
has not yet filed an annual report under s. 180.1622, the address of the foreign
corporation's principal office may be determined from its application for a
certificate of authority.
(5)(a) Except as provided in par. (b) and ss. 180.0807(2) and
180.0843(1), written notice is effective at the earliest of the following:
1. When received.
2. Five days after its deposit in the U.S. mail, if mailed postpaid and
correctly addressed.
3. On the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee.
4. On the effective date specified in the articles of incorporation or
bylaws.
(b) Written notice by a domestic corporation or foreign corporation to its
shareholder is effective when mailed and may be addressed to the shareholder's
address shown in the domestic corporation's or foreign corporation's current
record of shareholders.
(c) Oral notice is effective when communicated.
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[Robert W. Baird & Co. Incorporated Letterhead] APPENDIX C
May 13,1996
Board of Directors
Interstate Forging Industries, Inc.
4051 North 27th Street
Milwaukee, WI 53216
Gentlemen:
Interstate Forging Industries, Inc. (the "Company") proposes to enter into
an Agreement and Plan of Merger (the "Agreement") with Citation Corporation
("Citation") and Citation Forging Corporation, a wholly owned subsidiary of
Citation ("Sub"). Pursuant to the Agreement, as of the Effective Time (as
defined in the Agreement), Sub will be merged with and into the Company (the
"Merger") and each outstanding share of common stock, par value $1.00 per share
("Company Common Stock") of the Company (other than shares held in the Company's
treasury and shares held by parties perfecting dissenter's appraisal rights)
will be converted solely into the right to receive the Company Stock Price (as
hereinafter defined), payable as of the Effective Time, and the Contingent
Payments (as hereinafter defined), payable as set forth in the Agreement. The
Company Stock Price and the per share Contingent Payments are collectively
referred to as the "Merger Consideration". You have requested our opinion as to
the fairness, from a financial point of view, to the holders of Company Common
Stock (other than Citation, Sub and their affiliates) of the Merger
Consideration.
The "Closing Merger Payment" means the sum of (i) $45,409,000 (less certain
transaction costs), plus (ii) an amount equal to (A) $9,952.66 multiplied by (B)
the number of calendar days from and after April 1, 1996, to and including the
closing date of the Merger. The "Company Stock Price" means (x) the Closing
Merger Payment, plus $1,668,404, divided by (y) 1,496,474. The "Contingent
Payments" means an amount equal to five times the amount by which the average
annual net earnings of the Company before interest, income and franchise taxes
("EBIT") during the three-year period ending December 31, 1998 (the "Period")
exceeds $9,500,000. The Contingent Payments will be payable in annual
installments as follows: (i) with respect to EBIT for the years ending December
31, 1996 and 1997, equal to 50% of the Contingent Payments relating thereto,
(ii) the remainder of the Contingent Payments will be payable after the end of
the Period based upon the finally determined amount of the total Contingent
Payments.
Robert W. Baird & Co. Incorporated ("Baird"), as part of its investment
banking business, is engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
In conducting our investigation and analysis and in arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors as we have deemed relevant under the circumstances. In
that connection, we have, among other things: (i) reviewed certain internal
information, primarily financial in nature, including projections, concerning
the business and operations of the Company furnished to us by the Company for
purposes of our analysis, as well as historical financial information relating
to the Company's financial position and operating results; (ii) reviewed certain
publicly available information including but not limited to, Citation's recent
filings with the Securities and Exchange Commission and equity analyst research
reports prepared by various investment banking firms; (iii) reviewed a draft of
the Agreement in the form presented to the Board of Directors of the Company;
(iv) compared the financial position and operating results of the Company with
those of other publicly traded companies we deemed relevant; and (v) compared
the proposed financial terms of the Merger with the financial terms of certain
other business combinations we deemed relevant. We have held discussions with
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certain members of the Company's and Citation's senior management concerning the
Company's and Citation's respective historical and current financial condition
and operating results, as well as the future prospects of the Company and
Citation, respectively. We have also considered such other information,
financial studies, analysis and investigations and financial, economic and
market criteria which we deemed relevant for the preparation of this opinion.
We have not been requested to, and did not, solicit third party indications of
interest in acquiring all or any part of the Company.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of all of the financial and other information provided us by or
on behalf of the Company and Citation, or publicly available, and have not
attempted independently to verify any such information. We have assumed that
all material assets and liabilities (contingent or otherwise, known or unknown)
are as set forth on the Company's financial statements. With respect to
projections, we assumed that they have been reasonably prepared and represent
the best available estimates and good faith judgments of the Company's
management as to future performance of the Company. In conducting our review,
we have not made nor obtained an independent valuation or appraisal of any of
the assets or liabilities (contingent or otherwise) of the Company, nor have we
made a physical inspection of the properties or facilities of the Company. Our
opinion necessarily is based upon economic, monetary and market conditions as
they exist and can be evaluated on the date hereof, and does not predict or take
into account any changes which may occur, or information which may become
available, after the date hereof.
Our opinion has been prepared at the request and for the information of the
Company's Board of Directors, and shall not be reproduced, summarized, described
or referred to without the prior written consent of Baird; provided, however,
that this letter may be reproduced in full in the Proxy Statement/Prospectus
relating to the Contingent Payments. This opinion does not address the relative
merits of the Merger and any other potential transactions or business strategies
considered by the Company's Board of Directors, and does not constitute a
recommendation to any shareholder of the Company as to how any such shareholder
should vote with respect to the Merger. Baird will receive a fee for rendering
this opinion. In the past, we have provided investment banking services to the
Company, for which we have received our customary compensation.
In the ordinary course of our business, we may from time to time hold the
securities of the Company and Citation for our own account or the accounts of
our customers and, accordingly, may at any time hold long or short positions in
such securities. In addition, the President and Chief Executive Officer of
Baird is a director of the Company and is the beneficial owner of shares of
Company Common Stock.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Merger Consideration is fair, from a financial point of
view, to the holders of Company Common Stock (other than Citation, Sub and their
respective affiliates).
Very truly yours,
ROBERT W. BAIRD & CO. INCORPORATED
Terrance P. Maxwell
Managing Director
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Citation's Certificate of Incorporation eliminates, subject to certain
exceptions, the personal liability of directors of Citation or its stockholders
for monetary damages for breaches of fiduciary duties as directors. The
Certificate does not provide for the elimination of or limitation on the
personal liability of a director for (i) any breach of the director's duty of
loyalty to Citation or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) certain unlawful dividends or redemptions as provided under Section 174 of
the Delaware General Corporation Law or (iv) any transaction from which the
director derived an improper personal benefit. This provision of the
Certificate of Incorporation will limit the remedies available to a stockholder
in the event of breaches of any director's duties to such stockholder or
Citation.
Under Section 145 of the Delaware General Corporation Law, a corporation
may indemnify a director, officer, employee or agent of the corporation (or
other entity if such person is serving in such capacity at the corporation's
request) against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. In the case of an action brought by or in the right of a corporation,
the corporation may indemnify a director, officer, employee or agent of the
corporation (or other entity if such person is serving in such capacity at the
corporation's request) against expenses (including attorneys' fees) actually and
reasonably incurred by him if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person is fairly and reasonably entitled
to indemnification for such expenses as the court shall deem proper. Citation's
Bylaws provide that expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by Citation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by Citation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 21(A). EXHIBITS
NUMBER DOCUMENT
- ------ --------
2.1 Agreement and Plan of Merger, dated as of May 16, 1996 ("Merger
Agreement"), among Citation, Sub, Interstate (included in the Proxy
Statement-Prospectus as Appendix A).
4.1 Merger Agreement (included in the Proxy Statement-Prospectus as
Appendix A).
5.1 Opinion of Ritchie & Rediker, L.L.C. (filed herewith).
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith).
23.2 Consent of Ernst & Young LLP (filed herewith).
23.3 Consent of Ritchie & Rediker, L.L.C. (included as part of Exhibit
5.1).
23.4 Consent of Franklyn Esenberg (filed herewith).
24.1 Power of attorney of certain signatories (included on the Signature
Page).
99.1 Form of proxy/voting instructions to be used in connection with the
Special Meeting of Shareholders of Interstate (filed herewith).
II-1
<PAGE>
ITEM 21(B). FINANCIAL STATEMENT SCHEDULES.
None.
ITEM 22. UNDERTAKINGS.
(a) (1) The undersigned registrant hereby undertakes that, to file, during
any period in which offers or sales are being made, a post effective amendment
to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(a) (2) The undersigned registrant hereby undertakes that, for the
purpose of determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(a) (3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(a) (4) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(a) (5) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(a) (6) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (a)(5) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415 (Section 230.415
of this chapter), will be filed as part of an amendment to the registration
statement and will not be used until such amendment is
II-2
<PAGE>
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(a) (7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Citation pursuant to the provisions referred to in Item 20, or
otherwise, Citation has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Citation of
expenses incurred or paid by a director, officer or controlling person of
Citation in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Citation will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN BIRMINGHAM, ALABAMA, ON THE DATE
INDICATED.
CITATION CORPORATION
Date: June 24 , 1996 By: S/ T. MORRIS HACKNEY
--------------------- ----------------------------------
T. MORRIS HACKNEY,
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY
AUTHORIZES T. MORRIS HACKNEY AND R. CONNER WARREN AND EACH OF THEM, AS
ATTORNEY-IN-FACT, TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN EACH CAPACITY STATED
BELOW, AND TO FILE, ANY AMENDMENTS, INCLUDING POST-EFFECTIVE AMENDMENTS, TO THIS
REGISTRATION STATEMENT.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
S/ T. MORRIS HACKNEY Chairman of the Board, Chief June 24, 1996
- ---------------------------------------- Executive Officer and President
T. MORRIS HACKNEY (PRINCIPAL EXECUTIVE OFFICER)
S/ R. CONNER WARREN Executive Vice President of June 24, 1996
- ---------------------------------------- Finance and Administration,
R. CONNER WARREN Treasurer and Director
(PRINCIPAL FINANCIAL OFFICER)
S/ THOMAS W. BURLESON Vice President and Controller June 24, 1996
- ---------------------------------------- (PRINCIPAL ACCOUNTING OFFICER)
THOMAS W. BURLESON
S/ A. DERRILL CROWE Director June 24, 1996
- ----------------------------------------
A. DERRILL CROWE
S/ WILLIAM W. FEATHERINGILL Director June 24, 1996
- ----------------------------------------
WILLIAM W. FEATHERINGILL
S/ FRANK B. KELSO, II Director June 24, 1996
- ----------------------------------------
FRANK B. KELSO, II
S/ VAN L. RICHEY Director June 24, 1996
- ----------------------------------------
VAN L. RICHEY
S/ HUGH G. WEEKS Director June 24, 1996
- ----------------------------------------
HUGH G. WEEKS
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
NUMBER DOCUMENT
- ------ --------
2.1 Agreement and Plan of Merger, dated as of May 16, 1996 ("Merger
Agreement"), among Citation, Sub, Interstate (included in the Proxy
Statement-Prospectus as Appendix A).
4.1 Merger Agreement (included in the Proxy Statement-Prospectus as
Appendix A).
5.1 Opinion of Ritchie & Rediker, L.L.C. (filed herewith).
23.1 Consent of Coopers & Lybrand L.L.P. (filed herewith).
23.2 Consent of Ernst & Young LLP (filed herewith).
23.3 Consent of Ritchie & Rediker, L.L.C. (included as part of Exhibit
5.1).
23.4 Consent of Franklyn Esenberg (filed herewith).
24.1 Power of attorney of certain signatories (included on the Signature
Page).
99.1 Form of proxy/voting instructions to be used in connection with the
Special Meeting of Shareholders of Interstate (filed herewith).
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF RITCHIE & REDIKER, L.L.C.]
June 24, 1996
Citation Corporation
2 Office Park Circle
Birmingham, Alabama 35223
Gentlemen:
We have acted as counsel to Citation Corporation, a Delaware corporation
("Citation"), in connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by Citation pursuant to the Securities Act of
1933, as amended (the "Act"), relating to those certain contingent cash payments
(the "Contingent Payment Rights") that may be payable pursuant to the terms of
the Agreement and Plan of Merger (the "Merger Agreement") dated May 16, 1996 by
and among Citation, Citation Forging Corporation, a Wisconsin corporation and
wholly owned subsidiary of Citation ("Sub"), and Interstate Forging Industries,
Inc., a Wisconsin corporation ("Interstate"), in connection with the merger of
Sub with and into Interstate (the "Merger"). This opinion is furnished pursuant
to the requirements of Item 601(b)(5) of Regulation S-K.
As counsel to Citation, we have examined the corporate proceedings and such
other legal matters as we deemed relevant to the authorization and issuance of
the Contingent Payments Rights covered by the Registration Statement. Based on
that examination, it is our opinion that:
The Contingent Payment Rights to be issued in connection with the Merger,
when issued in accordance with the Merger Agreement following the fulfillment of
all requirements thereof, are validly authorized and, when the pertinent
provisions of the Act and such "blue-sky" and other state securities laws as may
be applicable have been complied with, and the transactions contemplated by the
Merger Agreement have been closed, will be validly issued, fully paid, and non-
assessable.
The foregoing opinion relates only to matters of the internal law of the
State of Delaware without reference to conflict of laws and to matters of
federal law, and we do not purport to express any opinion on the laws of any
other jurisdiction.
In the preparation of this opinion we have assumed without investigation
the authenticity of any document submitted to us as an original, the conformity
to the originals of any document submitted to us as a copy, the authenticity of
the originals of such latter document, the genuineness of all signatures, and
the legal capacity of natural persons.
<PAGE>
Citation Corporation
Page 2
We hereby consent to the filing of this opinion, or copies thereof, as
Exhibit 5 to the Registration Statement. In giving this consent, we do not
concede that we are experts within the meaning of the Act or the rules and
regulations thereunder, or that this consent is required by Section 7 of the Act
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
RITCHIE & REDIKER, L.L.C.
/s/ Ritchie & Rediker, L.L.C.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Citation Corporation and subsidiaries on Form S-4 of our report dated
November 13, 1995, on our audits of the consolidated financial statements of
Citation Corporation and subsidiaries as of October 1, 1995 and October 2,
1994, and for the years ended October 1, 1995, October 2, 1994 and October 3,
1993, which report is included in the Annual Report on Form 10-K for the
fiscal year ended October 1, 1995. We also consent to the reference to our
firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
June 24, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Information of Interstate" and "Experts" and to the use of our report
dated February 2, 1996, with respect to the financial statements of Interstate
Forging Industries, Inc. ("Interstate"), included in the Proxy Statement of
Interstate that is made a part of the Registration Statement (Form S-4) and
Prospectus of Citation Corporation for the registration of 1,496,474 Contingent
Payment Rights.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
June 24, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF FRANKLYN ESENBERG
In connection with the Registration Statement on Form S-4 filed by Citation
Corporation ("Citation") under the Securities Act of 1933, covering the
Contingent Payment Rights to be issued to shareholders of Interstate Forging
Industries, Inc. ("Interstate") in connection with the proposed acquisition of
Interstate by Citation pursuant to a statutory merger, the undersigned hereby
consents to be named in the Proxy Statement-Prospectus constituting a part of
such Registration Statement as a person who will become a director of Citation
upon consummation of such merger.
Dated: June 24, 1996
/s/ FRANKLYN ESENBERG
----------------------------
Franklyn Esenberg
<PAGE>
EXHIBIT 99.1
INTERSTATE FORGING INDUSTRIES, INC.
PROXY/VOTING INSTRUCTIONS FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _____________, 1996
THIS PROXY/VOTING INSTRUCTIONS IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Franklyn Esenberg and James Mitchell, and
each of them, as proxies with full power of substitution, and hereby authorizes
them to represent and to vote all shares of stock which the undersigned is
entitled to vote, with all the powers the undersigned would possess if
personally present, at the Special Meeting of Shareholders of Interstate Forging
Industries, Inc. ("Interstate") to be held in the 25th Floor Conference Center
at the Offices of Quarles & Brady, 411 East Wisconsin Avenue, Milwaukee,
Wisconsin, on _________, _______________, 1996, at ___ __.m., local time, or at
any adjournments or postponements thereof (the "Special Meeting"), as follows,
hereby revoking any proxy/voting instructions previously given:
1. To approve the Agreement and Plan of Merger, dated as of May 16, 1996,
among Interstate, Citation Corporation ("Citation") and Citation
Forging Corporation ("Sub"), pursuant to which, among other things:
(a) Sub would be merged with and into Interstate (the "Merger"), with
Interstate surviving the Merger as a wholly-owned subsidiary of
Citation, the separate of existence of Sub ceasing; and (b) each
outstanding share of Interstate Common Stock (other than shares for
which dissenters' rights are perfected), and each share of Interstate
Common Stock underlying an outstanding Interstate stock option, will
be converted into the right to receive, without interest thereon:
(i) a cash amount payable at the effective time of the Merger from
total aggregate closing consideration of $45,409,000, plus $9,952.66
per day from April 1, 1996 to and including the closing date of the
Merger, less Interstate Merger expenses, and (ii) certain additional
contingent cash payments should Interstate's average annual net
earnings before interest and income and franchise taxes during the
three year period ending December 31, 1998 exceed $9,500,000.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, on such other matters as may properly be brought
before the Special Meeting or any adjournments or postponements
thereof;
all as described and set forth in the Notice and Proxy Statement-Prospectus
relating to the Special Meeting, receipt of which are hereby acknowledged.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
(CONTINUED FROM REVERSE SIDE)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER SPECIFIED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE
VOTED "FOR" PROPOSAL 1. If you hold shares of Interstate Common Stock in the
Savings and Retirement Plan, this proxy constitutes voting instructions for any
shares so held by the undersigned,
Dated:____________________________, 1996
________________________________________
(Please sign exactly as name appears at
left.)
________________________________________
(If stock is owned by more than one
person, all owners should sign. Persons
signing as executors, administrators,
trustees or in similar capacities should
so indicate. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person.)
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
